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