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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Thursday, 12 February 15
INDONESIAN COAL PRICE REFERENCE INCHED DOWN 1.44% IN FEBRUARY
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down Indonesian coal bench mark price this month to US$ 62.92 pe ...
Thursday, 12 February 15
NEWBUILDING ORDERING ACTIVITY DRAGS ON, AS OWNERS ARE LOOKING FOR LOWER PRICES - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Ship owners appear to be waiting for lower prices in their dealings with Asian shipyards, as the dry bulk market is at historical lows. According t ...
Wednesday, 11 February 15
DRY BULK MARKET REMAINED UNDER PRESSURE : STABILIZING CAPE MARKET HARDLY HELPED SENTIMENT
COALspot.com: The Dry Bulk market remained under pressure last week, while the stabilizing Cape market hardly helped sentiment.
Greece based s ...
Wednesday, 11 February 15
BDI HITTING THE ALL-TIME LOW; FFA MARKETS NOT SHOWING ANY POSITIVE SIGNS
With the BDI hitting the all-time low and with FFA markets not showing any positive signs for a possible recovery in the near future, pessimism is ...
Tuesday, 10 February 15
IRON ORE MARKET TO REMAIN OVERSUPPLIED IN 2015: PRICE FORECAST $70/T - WOOD MACKENZIE
COALspot.com: With January witnessing the price of iron ore falling to its lowest levels since May 2009, Roger Emslie, Principal Metals & ...
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- Kapuas Tunggal Persada - Indonesia
- Barasentosa Lestari - Indonesia
- Australian Commodity Traders Exchange
- PTC India Limited - India
- Leighton Contractors Pty Ltd - Australia
- Romanian Commodities Exchange
- Meenaskhi Energy Private Limited - India
- Carbofer General Trading SA - India
- SMG Consultants - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Directorate Of Revenue Intelligence - India
- Parry Sugars Refinery, India
- Baramulti Group, Indonesia
- Electricity Generating Authority of Thailand
- Madhucon Powers Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Indian Oil Corporation Limited
- The Treasury - Australian Government
- Thiess Contractors Indonesia
- Mercuria Energy - Indonesia
- Ambuja Cements Ltd - India
- India Bulls Power Limited - India
- Sree Jayajothi Cements Limited - India
- Grasim Industreis Ltd - India
- Electricity Authority, New Zealand
- GMR Energy Limited - India
- Tata Chemicals Ltd - India
- Agrawal Coal Company - India
- Petron Corporation, Philippines
- Merrill Lynch Commodities Europe
- Chettinad Cement Corporation Ltd - India
- Bharathi Cement Corporation - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Interocean Group of Companies - India
- Riau Bara Harum - Indonesia
- GVK Power & Infra Limited - India
- Africa Commodities Group - South Africa
- New Zealand Coal & Carbon
- ICICI Bank Limited - India
- Power Finance Corporation Ltd., India
- Manunggal Multi Energi - Indonesia
- Salva Resources Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- MS Steel International - UAE
- Sical Logistics Limited - India
- Ministry of Mines - Canada
- Asmin Koalindo Tuhup - Indonesia
- Aditya Birla Group - India
- Deloitte Consulting - India
- LBH Netherlands Bv - Netherlands
- Billiton Holdings Pty Ltd - Australia
- Star Paper Mills Limited - India
- Formosa Plastics Group - Taiwan
- Vijayanagar Sugar Pvt Ltd - India
- Georgia Ports Authority, United States
- Cigading International Bulk Terminal - Indonesia
- Therma Luzon, Inc, Philippines
- Mjunction Services Limited - India
- IHS Mccloskey Coal Group - USA
- Global Coal Blending Company Limited - Australia
- Timah Investasi Mineral - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- Economic Council, Georgia
- Bukit Asam (Persero) Tbk - Indonesia
- Standard Chartered Bank - UAE
- Trasteel International SA, Italy
- Gujarat Sidhee Cement - India
- Karbindo Abesyapradhi - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- IEA Clean Coal Centre - UK
- Australian Coal Association
- TeaM Sual Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- Anglo American - United Kingdom
- Gujarat Mineral Development Corp Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- GN Power Mariveles Coal Plant, Philippines
- Pendopo Energi Batubara - Indonesia
- Vizag Seaport Private Limited - India
- Borneo Indobara - Indonesia
- SN Aboitiz Power Inc, Philippines
- Mintek Dendrill Indonesia
- Kartika Selabumi Mining - Indonesia
- Intertek Mineral Services - Indonesia
- ASAPP Information Group - India
- Ceylon Electricity Board - Sri Lanka
- Lanco Infratech Ltd - India
- Global Business Power Corporation, Philippines
- Meralco Power Generation, Philippines
- Goldman Sachs - Singapore
- Toyota Tsusho Corporation, Japan
- The State Trading Corporation of India Ltd
- European Bulk Services B.V. - Netherlands
- International Coal Ventures Pvt Ltd - India
- Renaissance Capital - South Africa
- Altura Mining Limited, Indonesia
- Videocon Industries ltd - India
- Dalmia Cement Bharat India
- Savvy Resources Ltd - HongKong
- Kalimantan Lumbung Energi - Indonesia
- Essar Steel Hazira Ltd - India
- Aboitiz Power Corporation - Philippines
- Rio Tinto Coal - Australia
- Orica Australia Pty. Ltd.
- London Commodity Brokers - England
- PNOC Exploration Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- Latin American Coal - Colombia
- Neyveli Lignite Corporation Ltd, - India
- Uttam Galva Steels Limited - India
- Central Java Power - Indonesia
- Indian Energy Exchange, India
- AsiaOL BioFuels Corp., Philippines
- Edison Trading Spa - Italy
- Rashtriya Ispat Nigam Limited - India
- Sakthi Sugars Limited - India
- GAC Shipping (India) Pvt Ltd
- Bhoruka Overseas - Indonesia
- Heidelberg Cement - Germany
- Sarangani Energy Corporation, Philippines
- Siam City Cement PLC, Thailand
- Holcim Trading Pte Ltd - Singapore
- Banpu Public Company Limited - Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Attock Cement Pakistan Limited
- Bayan Resources Tbk. - Indonesia
- Simpson Spence & Young - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Orica Mining Services - Indonesia
- Bulk Trading Sa - Switzerland
- Coal and Oil Company - UAE
- Malabar Cements Ltd - India
- Marubeni Corporation - India
- Energy Link Ltd, New Zealand
- Indo Tambangraya Megah - Indonesia
- Global Green Power PLC Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Bhushan Steel Limited - India
- Medco Energi Mining Internasional
- Bangladesh Power Developement Board
- Eastern Energy - Thailand
- White Energy Company Limited
- South Luzon Thermal Energy Corporation
- Offshore Bulk Terminal Pte Ltd, Singapore
- PowerSource Philippines DevCo
- Xindia Steels Limited - India
- Karaikal Port Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Larsen & Toubro Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Oldendorff Carriers - Singapore
- Cement Manufacturers Association - India
- Sojitz Corporation - Japan
- Maharashtra Electricity Regulatory Commission - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining Corp, Philippines
- Energy Development Corp, Philippines
- Indika Energy - Indonesia
- Makarim & Taira - Indonesia
- SMC Global Power, Philippines
- VISA Power Limited - India
- Sindya Power Generating Company Private Ltd
- Ministry of Finance - Indonesia
- Posco Energy - South Korea
- Indonesian Coal Mining Association
- Coastal Gujarat Power Limited - India
- Ind-Barath Power Infra Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kumho Petrochemical, South Korea
- Vedanta Resources Plc - India
- Alfred C Toepfer International GmbH - Germany
- Mercator Lines Limited - India
- Planning Commission, India
- Siam City Cement - Thailand
- Kohat Cement Company Ltd. - Pakistan
- CIMB Investment Bank - Malaysia
- Iligan Light & Power Inc, Philippines
- Metalloyd Limited - United Kingdom
- Ministry of Transport, Egypt
- Thai Mozambique Logistica
- Central Electricity Authority - India
- Minerals Council of Australia
- Globalindo Alam Lestari - Indonesia
- CNBM International Corporation - China
- Bukit Baiduri Energy - Indonesia
- Commonwealth Bank - Australia
- Eastern Coal Council - USA
- Port Waratah Coal Services - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Singapore Mercantile Exchange
- Kepco SPC Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Tamil Nadu electricity Board
- OPG Power Generation Pvt Ltd - India
- The University of Queensland
- Bukit Makmur.PT - Indonesia
- Price Waterhouse Coopers - Russia
- Chamber of Mines of South Africa
- Coalindo Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Wilmar Investment Holdings
- Jorong Barutama Greston.PT - Indonesia
- Indogreen Group - Indonesia
- Parliament of New Zealand
- Bhatia International Limited - India
- Binh Thuan Hamico - Vietnam
- Directorate General of MIneral and Coal - Indonesia
- Kobexindo Tractors - Indoneisa
- Krishnapatnam Port Company Ltd. - India
- Independent Power Producers Association of India
- Kideco Jaya Agung - Indonesia
- Antam Resourcindo - Indonesia
- San Jose City I Power Corp, Philippines
- McConnell Dowell - Australia
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