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