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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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Saturday, 14 February 15
SHALE GAS AND TIGHT OIL ARE COMMERCIALLY PRODUCED IN JUST FOUR COUNTRIES - EIA
KNOWLEDGE TO ELEVATE
The United States, Canada, China, and Argentina are currently the only four countries in the world that are producing com ...
Friday, 13 February 15
U.S. WEEKLY COAL PRODUCTION SHOWS 10% DECLINE
COALspot.com – United States the world's one of the largest coal producers, produced approximately 18.1 million short tons (mmst) of coal ...
Friday, 13 February 15
SMALL AND MEDIUM-SIZED SHIP OWNERS SQUEEZED OUT OF THE MARKET ON CRASHING DRY BULK MARKET AND EUROZONE CRISIS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Financing issues have started to tighten the noose in the throats of small and medium-size ship owners, who were already facing problems over the p ...
Thursday, 12 February 15
CAPESIZE: THE BEST DESCRIPTION FOR THE MARKET IS, FLAT - FEARNRESEARCH
Handy
The handy and supra market is also being affected by the marginal volume of activity in the commodity sales. We see a small upturn in the T ...
Thursday, 12 February 15
DRY BULK OWNERS SCRAP MORE VESSELS, AS MARKET REACHES HISTORICAL LOWS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has reached historical lows this week, with the Baltic Dry Index (BDI) now trading at levels below operating expense levels for ...
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- Australian Coal Association
- Mintek Dendrill Indonesia
- Indian Energy Exchange, India
- Bulk Trading Sa - Switzerland
- IHS Mccloskey Coal Group - USA
- Lanco Infratech Ltd - India
- Videocon Industries ltd - India
- The State Trading Corporation of India Ltd
- Attock Cement Pakistan Limited
- Karaikal Port Pvt Ltd - India
- Standard Chartered Bank - UAE
- Minerals Council of Australia
- Toyota Tsusho Corporation, Japan
- Larsen & Toubro Limited - India
- European Bulk Services B.V. - Netherlands
- Romanian Commodities Exchange
- Petrochimia International Co. Ltd.- Taiwan
- MS Steel International - UAE
- Ministry of Mines - Canada
- Medco Energi Mining Internasional
- Indogreen Group - Indonesia
- Aboitiz Power Corporation - Philippines
- CIMB Investment Bank - Malaysia
- Orica Mining Services - Indonesia
- Therma Luzon, Inc, Philippines
- Jaiprakash Power Ventures ltd
- Central Electricity Authority - India
- Star Paper Mills Limited - India
- Deloitte Consulting - India
- Global Coal Blending Company Limited - Australia
- McConnell Dowell - Australia
- Tamil Nadu electricity Board
- Heidelberg Cement - Germany
- Jindal Steel & Power Ltd - India
- VISA Power Limited - India
- Bhushan Steel Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Timah Investasi Mineral - Indoneisa
- Bayan Resources Tbk. - Indonesia
- Eastern Coal Council - USA
- SMG Consultants - Indonesia
- Global Green Power PLC Corporation, Philippines
- Ministry of Finance - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Savvy Resources Ltd - HongKong
- LBH Netherlands Bv - Netherlands
- Bhoruka Overseas - Indonesia
- Commonwealth Bank - Australia
- PowerSource Philippines DevCo
- Coalindo Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Edison Trading Spa - Italy
- Chamber of Mines of South Africa
- Directorate Of Revenue Intelligence - India
- Alfred C Toepfer International GmbH - Germany
- Indo Tambangraya Megah - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Gujarat Mineral Development Corp Ltd - India
- Carbofer General Trading SA - India
- Semirara Mining Corp, Philippines
- Mercuria Energy - Indonesia
- Kideco Jaya Agung - Indonesia
- Bharathi Cement Corporation - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- New Zealand Coal & Carbon
- Globalindo Alam Lestari - Indonesia
- Singapore Mercantile Exchange
- ICICI Bank Limited - India
- Borneo Indobara - Indonesia
- Petron Corporation, Philippines
- Port Waratah Coal Services - Australia
- Ind-Barath Power Infra Limited - India
- Mjunction Services Limited - India
- The Treasury - Australian Government
- Cement Manufacturers Association - India
- Electricity Generating Authority of Thailand
- Riau Bara Harum - Indonesia
- Kepco SPC Power Corporation, Philippines
- Altura Mining Limited, Indonesia
- Indian Oil Corporation Limited
- Semirara Mining and Power Corporation, Philippines
- Independent Power Producers Association of India
- Aditya Birla Group - India
- Vijayanagar Sugar Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- PetroVietnam Power Coal Import and Supply Company
- Africa Commodities Group - South Africa
- Makarim & Taira - Indonesia
- GMR Energy Limited - India
- Power Finance Corporation Ltd., India
- ASAPP Information Group - India
- Formosa Plastics Group - Taiwan
- Madhucon Powers Ltd - India
- Straits Asia Resources Limited - Singapore
- International Coal Ventures Pvt Ltd - India
- Uttam Galva Steels Limited - India
- CNBM International Corporation - China
- Kobexindo Tractors - Indoneisa
- Intertek Mineral Services - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Posco Energy - South Korea
- Sical Logistics Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Mercator Lines Limited - India
- Latin American Coal - Colombia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Australian Commodity Traders Exchange
- Billiton Holdings Pty Ltd - Australia
- Directorate General of MIneral and Coal - Indonesia
- Kumho Petrochemical, South Korea
- The University of Queensland
- Bukit Makmur.PT - Indonesia
- Eastern Energy - Thailand
- Malabar Cements Ltd - India
- PNOC Exploration Corporation - Philippines
- Xindia Steels Limited - India
- Ministry of Transport, Egypt
- Holcim Trading Pte Ltd - Singapore
- India Bulls Power Limited - India
- Interocean Group of Companies - India
- London Commodity Brokers - England
- Central Java Power - Indonesia
- Bhatia International Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Antam Resourcindo - Indonesia
- SN Aboitiz Power Inc, Philippines
- Electricity Authority, New Zealand
- Sakthi Sugars Limited - India
- GAC Shipping (India) Pvt Ltd
- Tata Chemicals Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Parliament of New Zealand
- GVK Power & Infra Limited - India
- Binh Thuan Hamico - Vietnam
- OPG Power Generation Pvt Ltd - India
- Thiess Contractors Indonesia
- Vizag Seaport Private Limited - India
- SMC Global Power, Philippines
- Parry Sugars Refinery, India
- Sree Jayajothi Cements Limited - India
- Vedanta Resources Plc - India
- Global Business Power Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Coastal Gujarat Power Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Sindya Power Generating Company Private Ltd
- Energy Link Ltd, New Zealand
- Orica Australia Pty. Ltd.
- Sojitz Corporation - Japan
- Ceylon Electricity Board - Sri Lanka
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Simpson Spence & Young - Indonesia
- Salva Resources Pvt Ltd - India
- PTC India Limited - India
- Meralco Power Generation, Philippines
- Baramulti Group, Indonesia
- Economic Council, Georgia
- Miang Besar Coal Terminal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Cigading International Bulk Terminal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- South Luzon Thermal Energy Corporation
- Kapuas Tunggal Persada - Indonesia
- Dalmia Cement Bharat India
- Maheswari Brothers Coal Limited - India
- Pendopo Energi Batubara - Indonesia
- Gujarat Sidhee Cement - India
- Energy Development Corp, Philippines
- Coal and Oil Company - UAE
- Agrawal Coal Company - India
- Wood Mackenzie - Singapore
- TeaM Sual Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
- Oldendorff Carriers - Singapore
- Grasim Industreis Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Wilmar Investment Holdings
- Anglo American - United Kingdom
- Gujarat Electricity Regulatory Commission - India
- Karbindo Abesyapradhi - Indoneisa
- Rio Tinto Coal - Australia
- Siam City Cement - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Banpu Public Company Limited - Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Indonesian Coal Mining Association
- Bangladesh Power Developement Board
- Samtan Co., Ltd - South Korea
- Siam City Cement PLC, Thailand
- Merrill Lynch Commodities Europe
- Chettinad Cement Corporation Ltd - India
- Essar Steel Hazira Ltd - India
- Sarangani Energy Corporation, Philippines
- Thai Mozambique Logistica
- Bukit Baiduri Energy - Indonesia
- San Jose City I Power Corp, Philippines
- Trasteel International SA, Italy
- Price Waterhouse Coopers - Russia
- IEA Clean Coal Centre - UK
- Marubeni Corporation - India
- Iligan Light & Power Inc, Philippines
- Planning Commission, India
- Meenaskhi Energy Private Limited - India
- Kaltim Prima Coal - Indonesia
- Barasentosa Lestari - Indonesia
- Renaissance Capital - South Africa
- White Energy Company Limited
- Georgia Ports Authority, United States
- Goldman Sachs - Singapore
- Ambuja Cements Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Indika Energy - Indonesia
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