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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Tuesday, 10 February 15
SUB-BIT FOB INDONESIA COAL SWAP ADVANCES 3.79% WEEK ON WEEK
COALspot.com: Indonesian coal swaps for delivery Q2' 2015 rose week over week and month on month.
The Q2 swap up US$ 0.85 (+1.81%) month o ...
Tuesday, 10 February 15
FOB NEWCASTLE COAL SWAPS SURGE WEEK OVER WEEK, RAISING HOPES?
COALspot.com: API 5 FOB Newcastle Coal swap for Q2’ 2015 delivery rose US$ 0.95 per MT (+1.91%) week over week and declined US$ 0.06 (-0.12%) ...
Monday, 09 February 15
AUSTRALIAN COAL PRODUCERS BEST POSITIONED IN OVERSUPPLIED MARKET; US MINES MOST AT RISK - WOOD MACKENZIE
In a 2015 global coal outlook report, Wood Mackenzie says that Australia and Indonesian coal suppliers will see some upside in the difficult months ...
Monday, 09 February 15
FOB RICHARDS BAY COAL SWAP GAINS 3.65% TO ONE-MONTH HIGH
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q2' 2015 surge month over month and day on day.
The Q2 swap has soared US$ 2.1 ...
Monday, 09 February 15
Q2' CFR SOUTH CHINA COAL SWAP DECLINED 3.28% TO $ 56.92 W-O-W
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery declined US$ 1.93 (-3.28%) per MT month over month and US$ 0.10 (-0 ...
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- The Treasury - Australian Government
- SMC Global Power, Philippines
- Cigading International Bulk Terminal - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- TeaM Sual Corporation - Philippines
- Jorong Barutama Greston.PT - Indonesia
- London Commodity Brokers - England
- Rio Tinto Coal - Australia
- Barasentosa Lestari - Indonesia
- Bhatia International Limited - India
- Posco Energy - South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Parliament of New Zealand
- Mintek Dendrill Indonesia
- Pendopo Energi Batubara - Indonesia
- Latin American Coal - Colombia
- Antam Resourcindo - Indonesia
- Salva Resources Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Cement Manufacturers Association - India
- Deloitte Consulting - India
- Attock Cement Pakistan Limited
- Toyota Tsusho Corporation, Japan
- Star Paper Mills Limited - India
- Indo Tambangraya Megah - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Semirara Mining Corp, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Savvy Resources Ltd - HongKong
- Petrochimia International Co. Ltd.- Taiwan
- Edison Trading Spa - Italy
- Lanco Infratech Ltd - India
- Merrill Lynch Commodities Europe
- Larsen & Toubro Limited - India
- Straits Asia Resources Limited - Singapore
- Marubeni Corporation - India
- Mercuria Energy - Indonesia
- SMG Consultants - Indonesia
- Heidelberg Cement - Germany
- Indonesian Coal Mining Association
- Aboitiz Power Corporation - Philippines
- Parry Sugars Refinery, India
- SN Aboitiz Power Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- Vizag Seaport Private Limited - India
- Thai Mozambique Logistica
- New Zealand Coal & Carbon
- Eastern Coal Council - USA
- Bank of Tokyo Mitsubishi UFJ Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Renaissance Capital - South Africa
- Gujarat Mineral Development Corp Ltd - India
- Tata Chemicals Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Bulk Trading Sa - Switzerland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Vedanta Resources Plc - India
- Alfred C Toepfer International GmbH - Germany
- Miang Besar Coal Terminal - Indonesia
- Chettinad Cement Corporation Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Kideco Jaya Agung - Indonesia
- Aditya Birla Group - India
- Interocean Group of Companies - India
- Holcim Trading Pte Ltd - Singapore
- Wilmar Investment Holdings
- Energy Link Ltd, New Zealand
- Orica Mining Services - Indonesia
- India Bulls Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Sakthi Sugars Limited - India
- Siam City Cement PLC, Thailand
- Madhucon Powers Ltd - India
- Global Business Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Metalloyd Limited - United Kingdom
- Kohat Cement Company Ltd. - Pakistan
- Indian Oil Corporation Limited
- LBH Netherlands Bv - Netherlands
- Minerals Council of Australia
- Karaikal Port Pvt Ltd - India
- Economic Council, Georgia
- CIMB Investment Bank - Malaysia
- Central Java Power - Indonesia
- Power Finance Corporation Ltd., India
- Coal and Oil Company - UAE
- South Luzon Thermal Energy Corporation
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sojitz Corporation - Japan
- Intertek Mineral Services - Indonesia
- Australian Coal Association
- Maharashtra Electricity Regulatory Commission - India
- Malabar Cements Ltd - India
- Trasteel International SA, Italy
- Medco Energi Mining Internasional
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Anglo American - United Kingdom
- MS Steel International - UAE
- Chamber of Mines of South Africa
- Electricity Authority, New Zealand
- Standard Chartered Bank - UAE
- AsiaOL BioFuels Corp., Philippines
- IHS Mccloskey Coal Group - USA
- Sinarmas Energy and Mining - Indonesia
- Coalindo Energy - Indonesia
- PowerSource Philippines DevCo
- Grasim Industreis Ltd - India
- IEA Clean Coal Centre - UK
- CNBM International Corporation - China
- Bukit Baiduri Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Bukit Makmur.PT - Indonesia
- Singapore Mercantile Exchange
- Kapuas Tunggal Persada - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Bharathi Cement Corporation - India
- Ministry of Transport, Egypt
- Africa Commodities Group - South Africa
- Gujarat Electricity Regulatory Commission - India
- European Bulk Services B.V. - Netherlands
- Videocon Industries ltd - India
- Riau Bara Harum - Indonesia
- Indian Energy Exchange, India
- Essar Steel Hazira Ltd - India
- Binh Thuan Hamico - Vietnam
- International Coal Ventures Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Krishnapatnam Port Company Ltd. - India
- Xindia Steels Limited - India
- Bayan Resources Tbk. - Indonesia
- Kartika Selabumi Mining - Indonesia
- Thiess Contractors Indonesia
- Bhoruka Overseas - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Independent Power Producers Association of India
- Formosa Plastics Group - Taiwan
- Directorate Of Revenue Intelligence - India
- GN Power Mariveles Coal Plant, Philippines
- Kobexindo Tractors - Indoneisa
- OPG Power Generation Pvt Ltd - India
- Indika Energy - Indonesia
- Carbofer General Trading SA - India
- GMR Energy Limited - India
- Gujarat Sidhee Cement - India
- Meenaskhi Energy Private Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Rashtriya Ispat Nigam Limited - India
- ASAPP Information Group - India
- Mjunction Services Limited - India
- Planning Commission, India
- Neyveli Lignite Corporation Ltd, - India
- Jindal Steel & Power Ltd - India
- Petron Corporation, Philippines
- Kumho Petrochemical, South Korea
- Energy Development Corp, Philippines
- Samtan Co., Ltd - South Korea
- Ministry of Mines - Canada
- Baramulti Group, Indonesia
- Sarangani Energy Corporation, Philippines
- The State Trading Corporation of India Ltd
- Goldman Sachs - Singapore
- Coastal Gujarat Power Limited - India
- Australian Commodity Traders Exchange
- Port Waratah Coal Services - Australia
- Romanian Commodities Exchange
- Kalimantan Lumbung Energi - Indonesia
- Eastern Energy - Thailand
- Kaltim Prima Coal - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- The University of Queensland
- Billiton Holdings Pty Ltd - Australia
- Bangladesh Power Developement Board
- Therma Luzon, Inc, Philippines
- Commonwealth Bank - Australia
- Tamil Nadu electricity Board
- Sree Jayajothi Cements Limited - India
- GVK Power & Infra Limited - India
- Wood Mackenzie - Singapore
- PTC India Limited - India
- Electricity Generating Authority of Thailand
- Global Green Power PLC Corporation, Philippines
- Indogreen Group - Indonesia
- Simpson Spence & Young - Indonesia
- Timah Investasi Mineral - Indoneisa
- GAC Shipping (India) Pvt Ltd
- Price Waterhouse Coopers - Russia
- Central Electricity Authority - India
- San Jose City I Power Corp, Philippines
- Ambuja Cements Ltd - India
- Globalindo Alam Lestari - Indonesia
- White Energy Company Limited
- PetroVietnam Power Coal Import and Supply Company
- Ministry of Finance - Indonesia
- Banpu Public Company Limited - Thailand
- Iligan Light & Power Inc, Philippines
- Borneo Indobara - Indonesia
- Uttam Galva Steels Limited - India
- Mercator Lines Limited - India
- Agrawal Coal Company - India
- Georgia Ports Authority, United States
- Bhushan Steel Limited - India
- Ind-Barath Power Infra Limited - India
- Orica Australia Pty. Ltd.
- Dalmia Cement Bharat India
- Sical Logistics Limited - India
- ICICI Bank Limited - India
- McConnell Dowell - Australia
- VISA Power Limited - India
- PNOC Exploration Corporation - Philippines
- Siam City Cement - Thailand
- Makarim & Taira - Indonesia
- Meralco Power Generation, Philippines
- Jaiprakash Power Ventures ltd
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