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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Sunday, 08 February 15
BDI FELL CONTINUOUSLY HIT A THREE DECADES LOW
COALspot.com: This week Baltic Exchange Dry Freight Index (BDI) fell continuously hit a three decades low.
The BDI continuously fell and was d ...
Friday, 06 February 15
WEEKLY U.S. COAL PRODUCTION UP AN ESTIMATED 1.1% FROM LAST WEEK - EIA
COALspot.com – United States the world's one of the largest coal producers, produced approximately 20.1 million short tons (mmst) of coal ...
Friday, 06 February 15
SHIP DAMAGED BY FIRE CAUSED BY PIRATES FOUND TO BE CONSTRUCTIVE TOTAL LOSS - TAYLOR WESSING
KNOWLEDGE TO ELEVATE
The High Court was asked to determine a number of preliminary issues, including whether a vessel was a constructive total ...
Thursday, 05 February 15
BDI HAS NOW FALLEN A LEVEL CLOSE TO THE INDEX'S HISTORIC LOW - INTERMODAL
They say a picture is worth a thousand words and in this instance just one look at the tables above is enough to understand the great pressure the ...
Thursday, 05 February 15
ULTRAMAX LEVELS FROM INDIA TO CHINA IN THE MID US$ 5000'S - FEARNLEYS AS
Handy
Despite the overall weak sentiment, there is a scent of optimism in the Atlantic market for ppt dates. Continent is still struggling with o ...
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- Gujarat Electricity Regulatory Commission - India
- Siam City Cement PLC, Thailand
- Electricity Authority, New Zealand
- Bulk Trading Sa - Switzerland
- Kalimantan Lumbung Energi - Indonesia
- International Coal Ventures Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- GN Power Mariveles Coal Plant, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Merrill Lynch Commodities Europe
- Heidelberg Cement - Germany
- Thiess Contractors Indonesia
- Xindia Steels Limited - India
- GVK Power & Infra Limited - India
- Thai Mozambique Logistica
- Mjunction Services Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Edison Trading Spa - Italy
- Maharashtra Electricity Regulatory Commission - India
- Holcim Trading Pte Ltd - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Indian Energy Exchange, India
- AsiaOL BioFuels Corp., Philippines
- Bahari Cakrawala Sebuku - Indonesia
- IHS Mccloskey Coal Group - USA
- London Commodity Brokers - England
- Ministry of Transport, Egypt
- CIMB Investment Bank - Malaysia
- Krishnapatnam Port Company Ltd. - India
- Coal and Oil Company - UAE
- Oldendorff Carriers - Singapore
- Independent Power Producers Association of India
- Bhoruka Overseas - Indonesia
- Wood Mackenzie - Singapore
- Aboitiz Power Corporation - Philippines
- Vizag Seaport Private Limited - India
- Electricity Generating Authority of Thailand
- IEA Clean Coal Centre - UK
- CNBM International Corporation - China
- Maheswari Brothers Coal Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Malabar Cements Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Coalindo Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Georgia Ports Authority, United States
- Mintek Dendrill Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Bhushan Steel Limited - India
- Banpu Public Company Limited - Thailand
- Global Green Power PLC Corporation, Philippines
- Renaissance Capital - South Africa
- Sindya Power Generating Company Private Ltd
- Central Electricity Authority - India
- Port Waratah Coal Services - Australia
- Jaiprakash Power Ventures ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kepco SPC Power Corporation, Philippines
- Singapore Mercantile Exchange
- ICICI Bank Limited - India
- Romanian Commodities Exchange
- Eastern Energy - Thailand
- Australian Coal Association
- Energy Development Corp, Philippines
- Straits Asia Resources Limited - Singapore
- New Zealand Coal & Carbon
- GMR Energy Limited - India
- Rio Tinto Coal - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ambuja Cements Ltd - India
- Cement Manufacturers Association - India
- India Bulls Power Limited - India
- Makarim & Taira - Indonesia
- PTC India Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Bharathi Cement Corporation - India
- Mercuria Energy - Indonesia
- Larsen & Toubro Limited - India
- Tamil Nadu electricity Board
- Marubeni Corporation - India
- Indo Tambangraya Megah - Indonesia
- Chamber of Mines of South Africa
- Videocon Industries ltd - India
- Deloitte Consulting - India
- SN Aboitiz Power Inc, Philippines
- Coastal Gujarat Power Limited - India
- Essar Steel Hazira Ltd - India
- European Bulk Services B.V. - Netherlands
- Medco Energi Mining Internasional
- Kartika Selabumi Mining - Indonesia
- Riau Bara Harum - Indonesia
- Interocean Group of Companies - India
- Wilmar Investment Holdings
- Posco Energy - South Korea
- San Jose City I Power Corp, Philippines
- Bangladesh Power Developement Board
- Timah Investasi Mineral - Indoneisa
- Sinarmas Energy and Mining - Indonesia
- Eastern Coal Council - USA
- PNOC Exploration Corporation - Philippines
- Indika Energy - Indonesia
- Goldman Sachs - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Borneo Indobara - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Meenaskhi Energy Private Limited - India
- Bayan Resources Tbk. - Indonesia
- Kaltim Prima Coal - Indonesia
- Carbofer General Trading SA - India
- Power Finance Corporation Ltd., India
- Jindal Steel & Power Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Dalmia Cement Bharat India
- Ceylon Electricity Board - Sri Lanka
- Orica Australia Pty. Ltd.
- Kideco Jaya Agung - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Tata Chemicals Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Therma Luzon, Inc, Philippines
- Savvy Resources Ltd - HongKong
- Meralco Power Generation, Philippines
- Binh Thuan Hamico - Vietnam
- Globalindo Alam Lestari - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Finance - Indonesia
- The State Trading Corporation of India Ltd
- Antam Resourcindo - Indonesia
- Anglo American - United Kingdom
- Ministry of Mines - Canada
- Samtan Co., Ltd - South Korea
- Central Java Power - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Indian Oil Corporation Limited
- Planning Commission, India
- Parliament of New Zealand
- Agrawal Coal Company - India
- Kumho Petrochemical, South Korea
- Sree Jayajothi Cements Limited - India
- Orica Mining Services - Indonesia
- SMG Consultants - Indonesia
- Iligan Light & Power Inc, Philippines
- Gujarat Sidhee Cement - India
- Toyota Tsusho Corporation, Japan
- Madhucon Powers Ltd - India
- Petron Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sical Logistics Limited - India
- Uttam Galva Steels Limited - India
- Grasim Industreis Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Vedanta Resources Plc - India
- Lanco Infratech Ltd - India
- South Luzon Thermal Energy Corporation
- Latin American Coal - Colombia
- Billiton Holdings Pty Ltd - Australia
- Indonesian Coal Mining Association
- Simpson Spence & Young - Indonesia
- Ind-Barath Power Infra Limited - India
- Sakthi Sugars Limited - India
- Minerals Council of Australia
- Commonwealth Bank - Australia
- Semirara Mining Corp, Philippines
- Australian Commodity Traders Exchange
- LBH Netherlands Bv - Netherlands
- The University of Queensland
- Manunggal Multi Energi - Indonesia
- White Energy Company Limited
- OPG Power Generation Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- SMC Global Power, Philippines
- ASAPP Information Group - India
- McConnell Dowell - Australia
- Bukit Makmur.PT - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Parry Sugars Refinery, India
- Price Waterhouse Coopers - Russia
- Formosa Plastics Group - Taiwan
- Pendopo Energi Batubara - Indonesia
- Star Paper Mills Limited - India
- Trasteel International SA, Italy
- Economic Council, Georgia
- Barasentosa Lestari - Indonesia
- Bhatia International Limited - India
- Bukit Baiduri Energy - Indonesia
- Indogreen Group - Indonesia
- Sarangani Energy Corporation, Philippines
- Siam City Cement - Thailand
- VISA Power Limited - India
- The Treasury - Australian Government
- PowerSource Philippines DevCo
- GAC Shipping (India) Pvt Ltd
- Chettinad Cement Corporation Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Attock Cement Pakistan Limited
- Global Coal Blending Company Limited - Australia
- Karaikal Port Pvt Ltd - India
- MS Steel International - UAE
- Salva Resources Pvt Ltd - India
- Mercator Lines Limited - India
- Metalloyd Limited - United Kingdom
- Global Business Power Corporation, Philippines
- Africa Commodities Group - South Africa
- Gujarat Mineral Development Corp Ltd - India
- Altura Mining Limited, Indonesia
- Standard Chartered Bank - UAE
- Kobexindo Tractors - Indoneisa
- TeaM Sual Corporation - Philippines
- Baramulti Group, Indonesia
- Sojitz Corporation - Japan
- Energy Link Ltd, New Zealand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Aditya Birla Group - India
- Jorong Barutama Greston.PT - Indonesia
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