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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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- Grasim Industreis Ltd - India
- CIMB Investment Bank - Malaysia
- Sree Jayajothi Cements Limited - India
- Ceylon Electricity Board - Sri Lanka
- Krishnapatnam Port Company Ltd. - India
- Karbindo Abesyapradhi - Indoneisa
- Bayan Resources Tbk. - Indonesia
- New Zealand Coal & Carbon
- Power Finance Corporation Ltd., India
- Leighton Contractors Pty Ltd - Australia
- Ind-Barath Power Infra Limited - India
- Holcim Trading Pte Ltd - Singapore
- Global Business Power Corporation, Philippines
- Gujarat Sidhee Cement - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Manunggal Multi Energi - Indonesia
- Thiess Contractors Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Thai Mozambique Logistica
- Meenaskhi Energy Private Limited - India
- Global Green Power PLC Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Eastern Coal Council - USA
- Port Waratah Coal Services - Australia
- Bhoruka Overseas - Indonesia
- Semirara Mining Corp, Philippines
- Electricity Authority, New Zealand
- Central Java Power - Indonesia
- Indogreen Group - Indonesia
- Coalindo Energy - Indonesia
- Chamber of Mines of South Africa
- Eastern Energy - Thailand
- Cigading International Bulk Terminal - Indonesia
- Madhucon Powers Ltd - India
- Latin American Coal - Colombia
- Kaltim Prima Coal - Indonesia
- Parliament of New Zealand
- Straits Asia Resources Limited - Singapore
- Karaikal Port Pvt Ltd - India
- Heidelberg Cement - Germany
- Merrill Lynch Commodities Europe
- Simpson Spence & Young - Indonesia
- Kumho Petrochemical, South Korea
- SMG Consultants - Indonesia
- Kepco SPC Power Corporation, Philippines
- PowerSource Philippines DevCo
- GAC Shipping (India) Pvt Ltd
- Indian Energy Exchange, India
- Renaissance Capital - South Africa
- Alfred C Toepfer International GmbH - Germany
- Tamil Nadu electricity Board
- SN Aboitiz Power Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Bukit Baiduri Energy - Indonesia
- Mintek Dendrill Indonesia
- Orica Mining Services - Indonesia
- Ministry of Transport, Egypt
- Bank of Tokyo Mitsubishi UFJ Ltd
- PetroVietnam Power Coal Import and Supply Company
- Attock Cement Pakistan Limited
- TNB Fuel Sdn Bhd - Malaysia
- Bulk Trading Sa - Switzerland
- MS Steel International - UAE
- Lanco Infratech Ltd - India
- McConnell Dowell - Australia
- Minerals Council of Australia
- The State Trading Corporation of India Ltd
- Interocean Group of Companies - India
- LBH Netherlands Bv - Netherlands
- The University of Queensland
- Dalmia Cement Bharat India
- Kobexindo Tractors - Indoneisa
- Jindal Steel & Power Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Mercuria Energy - Indonesia
- Bangladesh Power Developement Board
- London Commodity Brokers - England
- Electricity Generating Authority of Thailand
- Oldendorff Carriers - Singapore
- Star Paper Mills Limited - India
- Billiton Holdings Pty Ltd - Australia
- Directorate General of MIneral and Coal - Indonesia
- Barasentosa Lestari - Indonesia
- GVK Power & Infra Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Singapore Mercantile Exchange
- Globalindo Alam Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Parry Sugars Refinery, India
- Semirara Mining and Power Corporation, Philippines
- The Treasury - Australian Government
- Savvy Resources Ltd - HongKong
- SMC Global Power, Philippines
- Ambuja Cements Ltd - India
- Xindia Steels Limited - India
- Posco Energy - South Korea
- Sojitz Corporation - Japan
- Jaiprakash Power Ventures ltd
- Toyota Tsusho Corporation, Japan
- Price Waterhouse Coopers - Russia
- GN Power Mariveles Coal Plant, Philippines
- Edison Trading Spa - Italy
- Bukit Makmur.PT - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Orica Australia Pty. Ltd.
- Anglo American - United Kingdom
- Intertek Mineral Services - Indonesia
- GMR Energy Limited - India
- ICICI Bank Limited - India
- Iligan Light & Power Inc, Philippines
- Malabar Cements Ltd - India
- Australian Coal Association
- Asia Pacific Energy Resources Ventures Inc, Philippines
- India Bulls Power Limited - India
- Riau Bara Harum - Indonesia
- VISA Power Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Samtan Co., Ltd - South Korea
- Timah Investasi Mineral - Indoneisa
- Standard Chartered Bank - UAE
- Africa Commodities Group - South Africa
- Aboitiz Power Corporation - Philippines
- Formosa Plastics Group - Taiwan
- Australian Commodity Traders Exchange
- Salva Resources Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Siam City Cement - Thailand
- Marubeni Corporation - India
- Sical Logistics Limited - India
- San Jose City I Power Corp, Philippines
- Banpu Public Company Limited - Thailand
- Wood Mackenzie - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Bhatia International Limited - India
- Ministry of Mines - Canada
- Agrawal Coal Company - India
- Chettinad Cement Corporation Ltd - India
- Planning Commission, India
- Bharathi Cement Corporation - India
- Asmin Koalindo Tuhup - Indonesia
- Altura Mining Limited, Indonesia
- Tata Chemicals Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Vedanta Resources Plc - India
- Petron Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Maheswari Brothers Coal Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Antam Resourcindo - Indonesia
- Economic Council, Georgia
- Aditya Birla Group - India
- Kartika Selabumi Mining - Indonesia
- ASAPP Information Group - India
- Makarim & Taira - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Essar Steel Hazira Ltd - India
- PNOC Exploration Corporation - Philippines
- Gujarat Electricity Regulatory Commission - India
- Carbofer General Trading SA - India
- Meralco Power Generation, Philippines
- Energy Development Corp, Philippines
- Independent Power Producers Association of India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Trasteel International SA, Italy
- Goldman Sachs - Singapore
- Coal and Oil Company - UAE
- Romanian Commodities Exchange
- AsiaOL BioFuels Corp., Philippines
- Uttam Galva Steels Limited - India
- Mjunction Services Limited - India
- Therma Luzon, Inc, Philippines
- Baramulti Group, Indonesia
- TeaM Sual Corporation - Philippines
- Gujarat Mineral Development Corp Ltd - India
- Sakthi Sugars Limited - India
- Vizag Seaport Private Limited - India
- Siam City Cement PLC, Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Cement Manufacturers Association - India
- Mercator Lines Limited - India
- Larsen & Toubro Limited - India
- Indo Tambangraya Megah - Indonesia
- Rio Tinto Coal - Australia
- Bhushan Steel Limited - India
- Miang Besar Coal Terminal - Indonesia
- Indonesian Coal Mining Association
- Central Electricity Authority - India
- Indika Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- Metalloyd Limited - United Kingdom
- Maharashtra Electricity Regulatory Commission - India
- Videocon Industries ltd - India
- Georgia Ports Authority, United States
- Sarangani Energy Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Indian Oil Corporation Limited
- CNBM International Corporation - China
- Coastal Gujarat Power Limited - India
- PTC India Limited - India
- Commonwealth Bank - Australia
- Kapuas Tunggal Persada - Indonesia
- IHS Mccloskey Coal Group - USA
- South Luzon Thermal Energy Corporation
- Medco Energi Mining Internasional
- Deloitte Consulting - India
- Petrochimia International Co. Ltd.- Taiwan
- Bukit Asam (Persero) Tbk - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Directorate Of Revenue Intelligence - India
- Borneo Indobara - Indonesia
- Ministry of Finance - Indonesia
- Wilmar Investment Holdings
- White Energy Company Limited
- Sindya Power Generating Company Private Ltd
- IEA Clean Coal Centre - UK
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