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Tuesday, 10 March 15
OIL PRICE FORECASTING - IGNORE THE EXPERTS: COLIN MARSHALL
 KNOWLEDGE TO ELEVATE
Experts put themselves on a pedestal, making claims to have special forecasting abilities for oil price trends. They, too, one way or another, charge for making those claims. Because of this, they deserve to be investigated. And, depending on the outcome of the investigation, they may also be deserving of ridicule.So, what is driving the oil price today? Many commentators have noted that today, there are a number of hypotheses, phenomena and factors all contributing to the vagaries of the oil price:
Rising shale hydrocarbon supply. Shale oil and gas ramping up, as producers have recognized that shale production is more prolific than expected. Furthermore, the certainty of shale hydrocarbon production has proved attractive (compared with normal exploration), following more of a “production line” model, where every dollar injected delivers a reasonably certain production.
Worldwide oil demand is dropping and not just in China. Efficiencies are resulting in reduced demand. Winters are generally milder. Slowly but surely, global users are switching to gas and dropping the price as technology improves and economies of scale kick in.
Cars create about 60 percent of the demand for oil, and the introduction of gas-powered and electric vehicles is increasing. Solar power is also increasing and could become a material alternative energy source in the medium term.
The Middle East is unstable. The potential for severe supply disruption from war, political (“Arab Spring”) uprisings or even sanctions adds tension and uncertainty into the already precarious supply and demand balancing acts. Erratic production from war-torn countries like Iraq and Libya often surprise the market with actual supply far different from predictions.
The Islamic State (IS) scares analysts as well. The market is easily spooked by terrorism, notably IS, who frightens even al-Qaeda. This threat of terrorist activities tends to keep prices high or at least volatile.
Prices need to support budgets. Many countries rely heavily on oil and gas revenues to support their national budgets.
In other words, once prices drop, their pain may force them to cut production themselves if they are Organization of Petroleum Exporting Countries (OPEC) members, or at least put significant pressure on swing producers to reduce production to increase prices.
Saudi believes in supply and demand. Saudi Arabia, and hence OPEC, has maintained a firm stance not to cut production to maintain prices, as they believe that any reduction would probably not increase oil prices, as the shale producers would simply fill the gap.
By allowing oil prices to fall, Saudi hopes the shale producers will reduce production, and not make material shale-related infrastructure capital commitments.
Supply will drop, prices rise, allowing OPEC to maintain their market share, at higher prices, in the future.
Saudi doesn’t believe in supply and demand — it’s all geo-politics. Saudi wants to see the end of the current Syrian regime, as does Qatar, as Syria blocks their access to European gas.
Despite this anti-Syria alignment, Qatar allegedly supports IS as a catalyst to topple Syria whereas Saudi chooses to allow oil prices to free-fall, to put pressure on Russia to stop supporting Syria, a position the US allegedly supports.
Putin is unlikely to capitulate as giving central Europe an alternative gas supply to mother Russia may bring even more pain than low oil prices.
Reduced costs will mitigate the lower prices. Some ambivalence toward low prices, especially by the majors, comes from the fact that costs are expected to eventually drop as inefficiencies (“fat”) are taken out of various components of the energy value chain.
In other words, providing one has the resources to endure the period until costs “catch-up” and reduce sufficiently, producers should eventually see a return to the profits they were previously receiving, even in a low oil-price environment.
Work programs are committed. Some companies have work commitments that cannot be immediately adjusted as a result of oil price changes.
Hedges give some short-term protection. Some companies will have taken out oil price hedges and this will have protected them from low oil prices, disincentivizing them to reduce production — but these hedges will drop off soon.
Two primary observations develop from this long list: first, there are a lot of points, perhaps suggesting that we really cannot expect to make a sensible prediction.
Second, there are arguments on both the supply and demand side, making anyone who tediously repeats the platitude about “the oil price being simply about supply and demand” appears somewhat simple-minded.
Whilst people may believe that their (or others) actions affect or manipulate the oil price, the reality may be that the consequences of those actions are of minor importance only.
The low oil price fluctuations are possibly due to unimagined and unfathomable factors, or complex combinations of factors.
The bottom line is that the world is much more complex these days and this makes the oil price difficult to predict. Even the fact that most commentators today believe that the oil price will stay low for at least a year or so should be taken with a grain of salt — nobody really knows.
A single war or major terrorist action could have catastrophic consequences on oil prices.
So what will happen to the oil price? As one with no pretensions of having knowledge, I predict oil price will swing in a US$50-100/per barrel range for the next few years or so, then gradually rise as population, education, prosperity and demand continues to rise, but still swinging in a fairly large range.
This $50-100/bbl range is justified as follows: Putting aside all the excuses for not being able to make predictions, including the obfuscating geopolitical conspiracy theories, it appears that a major factor is the addition of large quantities of shale hydrocarbons on the market, accessible as a result of new technology.
As oil prices increased an alternative has appeared, today in the form of shale hydrocarbons.
Shale oil is believed to cost around $85/bbl to produce — and a well’s production declines rapidly, falling by about 60 percent in the first year alone. In other words, shale hydrocarbons need new, expensive wells continuously to maintain production — below $85/bbl this will not happen and supply will reduce as wells are not drilled, increasing demand.
Recognizing that price does not rebound immediately, that there is a lag or elasticity to the price, prices may drop to a natural floor of around $50, by which point under most circumstances demand will send the price north once again.
The longer oil is “low”, then the more quickly it will swing back and likely over-shoot the $85/bbl ceiling, perhaps up to around $100/bbl, before inevitably descending once again.
Hence I believe the price will be around $50-100, the period and magnitude of the changes primarily in response to the ongoing geopolitical parlor games.
Some may accuse me of protecting myself by suggesting such a large range, but in fact I am specifically predicting there will be fluctuations in that bandwidth, with an average price around $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Tuesday, 17 February 15
Q2' FOB RICHARDS BAY COAL SWAP CLOSED AT $63.45; $ 1.85 HIGHER COMPARED TO Q4 CLOSING
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q2' 2015 surge month over month, week on week and day on day.
The Q2 swap has ...
Monday, 16 February 15
COAL MINING SLUMP A BLESSING IN DISGUISE - THE JAKARTA POST
The growth of the coal-mining industry, which has diminished in the last two years, is expected to slump even further this year following weakening ...
Monday, 16 February 15
FOB NEWCASTLE COAL SWAPS SURGE WEEK ON WEEK
COALspot.com: API 5 FOB Newcastle Coal swap for Q2’ 2015 delivery rose US$ 1.31 per MT (+2.59%) week over week and US$ 4.35 (+9.13%) month on ...
Monday, 16 February 15
Q2' 15 - CFR SOUTH CHINA COAL SWAP ROSE 5.22% M-O-M
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery rose US$ 2.88 (+5.22%) per MT month over month and US$ 1.08 (+1.90% ...
Sunday, 15 February 15
BALTIC DRY INDEX CONTINUALLY DIPPED IN RED
COALspot.com: The Baltic Dry Index continues its decline and fell 5.18 pct to 530 points week on week due to falling commodity prices and declining ...
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- SN Aboitiz Power Inc, Philippines
- ASAPP Information Group - India
- Larsen & Toubro Limited - India
- Vizag Seaport Private Limited - India
- Antam Resourcindo - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Georgia Ports Authority, United States
- AsiaOL BioFuels Corp., Philippines
- Holcim Trading Pte Ltd - Singapore
- Orica Mining Services - Indonesia
- Central Java Power - Indonesia
- Binh Thuan Hamico - Vietnam
- India Bulls Power Limited - India
- Meenaskhi Energy Private Limited - India
- Bhushan Steel Limited - India
- Meralco Power Generation, Philippines
- Eastern Coal Council - USA
- Jorong Barutama Greston.PT - Indonesia
- The University of Queensland
- Kaltim Prima Coal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Star Paper Mills Limited - India
- Trasteel International SA, Italy
- Straits Asia Resources Limited - Singapore
- Billiton Holdings Pty Ltd - Australia
- GN Power Mariveles Coal Plant, Philippines
- Ind-Barath Power Infra Limited - India
- Aboitiz Power Corporation - Philippines
- Indian Oil Corporation Limited
- PowerSource Philippines DevCo
- CIMB Investment Bank - Malaysia
- Standard Chartered Bank - UAE
- European Bulk Services B.V. - Netherlands
- Edison Trading Spa - Italy
- San Jose City I Power Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- Borneo Indobara - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Cement Manufacturers Association - India
- Toyota Tsusho Corporation, Japan
- Parry Sugars Refinery, India
- Agrawal Coal Company - India
- Anglo American - United Kingdom
- Bharathi Cement Corporation - India
- Lanco Infratech Ltd - India
- Madhucon Powers Ltd - India
- Cigading International Bulk Terminal - Indonesia
- International Coal Ventures Pvt Ltd - India
- Siam City Cement - Thailand
- Attock Cement Pakistan Limited
- TNB Fuel Sdn Bhd - Malaysia
- Bukit Asam (Persero) Tbk - Indonesia
- Riau Bara Harum - Indonesia
- Altura Mining Limited, Indonesia
- Price Waterhouse Coopers - Russia
- Australian Coal Association
- White Energy Company Limited
- Globalindo Alam Lestari - Indonesia
- Orica Australia Pty. Ltd.
- London Commodity Brokers - England
- Chettinad Cement Corporation Ltd - India
- Energy Development Corp, Philippines
- Goldman Sachs - Singapore
- Global Green Power PLC Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Bayan Resources Tbk. - Indonesia
- Videocon Industries ltd - India
- Leighton Contractors Pty Ltd - Australia
- Maheswari Brothers Coal Limited - India
- Global Business Power Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Wood Mackenzie - Singapore
- SMG Consultants - Indonesia
- Bulk Trading Sa - Switzerland
- Independent Power Producers Association of India
- Heidelberg Cement - Germany
- Kapuas Tunggal Persada - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Africa Commodities Group - South Africa
- ICICI Bank Limited - India
- Makarim & Taira - Indonesia
- Global Coal Blending Company Limited - Australia
- Neyveli Lignite Corporation Ltd, - India
- Kobexindo Tractors - Indoneisa
- Wilmar Investment Holdings
- VISA Power Limited - India
- Medco Energi Mining Internasional
- Ministry of Transport, Egypt
- New Zealand Coal & Carbon
- Gujarat Sidhee Cement - India
- GAC Shipping (India) Pvt Ltd
- Bukit Baiduri Energy - Indonesia
- Merrill Lynch Commodities Europe
- Vedanta Resources Plc - India
- Electricity Generating Authority of Thailand
- Chamber of Mines of South Africa
- Bhatia International Limited - India
- PTC India Limited - India
- Savvy Resources Ltd - HongKong
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Baramulti Group, Indonesia
- Kideco Jaya Agung - Indonesia
- Dalmia Cement Bharat India
- Petrochimia International Co. Ltd.- Taiwan
- Sindya Power Generating Company Private Ltd
- Latin American Coal - Colombia
- Jindal Steel & Power Ltd - India
- Eastern Energy - Thailand
- Energy Link Ltd, New Zealand
- Tata Chemicals Ltd - India
- LBH Netherlands Bv - Netherlands
- IEA Clean Coal Centre - UK
- Sinarmas Energy and Mining - Indonesia
- PNOC Exploration Corporation - Philippines
- Rio Tinto Coal - Australia
- Coal and Oil Company - UAE
- Indonesian Coal Mining Association
- Thai Mozambique Logistica
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sical Logistics Limited - India
- Minerals Council of Australia
- Directorate Of Revenue Intelligence - India
- Banpu Public Company Limited - Thailand
- Central Electricity Authority - India
- Bukit Makmur.PT - Indonesia
- Ministry of Mines - Canada
- Kepco SPC Power Corporation, Philippines
- Carbofer General Trading SA - India
- TeaM Sual Corporation - Philippines
- Karaikal Port Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Manunggal Multi Energi - Indonesia
- Barasentosa Lestari - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Electricity Authority, New Zealand
- Uttam Galva Steels Limited - India
- Mercator Lines Limited - India
- Mintek Dendrill Indonesia
- Mjunction Services Limited - India
- Pendopo Energi Batubara - Indonesia
- Bangladesh Power Developement Board
- Indika Energy - Indonesia
- Kumho Petrochemical, South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhoruka Overseas - Indonesia
- Romanian Commodities Exchange
- Power Finance Corporation Ltd., India
- Australian Commodity Traders Exchange
- Salva Resources Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Krishnapatnam Port Company Ltd. - India
- Kalimantan Lumbung Energi - Indonesia
- Ambuja Cements Ltd - India
- The State Trading Corporation of India Ltd
- Coalindo Energy - Indonesia
- Indian Energy Exchange, India
- CNBM International Corporation - China
- Intertek Mineral Services - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Economic Council, Georgia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Maharashtra Electricity Regulatory Commission - India
- Singapore Mercantile Exchange
- Indogreen Group - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Grasim Industreis Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Parliament of New Zealand
- Planning Commission, India
- Interocean Group of Companies - India
- Therma Luzon, Inc, Philippines
- Deloitte Consulting - India
- Coastal Gujarat Power Limited - India
- Thiess Contractors Indonesia
- OPG Power Generation Pvt Ltd - India
- SMC Global Power, Philippines
- IHS Mccloskey Coal Group - USA
- Vijayanagar Sugar Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Indo Tambangraya Megah - Indonesia
- Tamil Nadu electricity Board
- South Luzon Thermal Energy Corporation
- Sojitz Corporation - Japan
- Xindia Steels Limited - India
- Siam City Cement PLC, Thailand
- Mercuria Energy - Indonesia
- Semirara Mining Corp, Philippines
- MS Steel International - UAE
- Semirara Mining and Power Corporation, Philippines
- Posco Energy - South Korea
- Commonwealth Bank - Australia
- McConnell Dowell - Australia
- Ministry of Finance - Indonesia
- GMR Energy Limited - India
- Iligan Light & Power Inc, Philippines
- Jaiprakash Power Ventures ltd
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Aditya Birla Group - India
- Sarangani Energy Corporation, Philippines
- Oldendorff Carriers - Singapore
- Renaissance Capital - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- The Treasury - Australian Government
- Malabar Cements Ltd - India
- Timah Investasi Mineral - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Samtan Co., Ltd - South Korea
- GVK Power & Infra Limited - India
- Petron Corporation, Philippines
- Port Waratah Coal Services - Australia
- Sakthi Sugars Limited - India
- Formosa Plastics Group - Taiwan
- Marubeni Corporation - India
- Essar Steel Hazira Ltd - India
- Simpson Spence & Young - Indonesia
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