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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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Wednesday, 04 February 15
MARKET INSIGHT - LINOS KOGEVINAS
It has been just about over 2 months since, in a move that surprised many and caused widespread apprehension, OPEC decided to maintain its producti ...
Tuesday, 03 February 15
Q1'15 FOB INDONESIA COAL SWAP CLOSED $ 3.29 HIGHER COMPARED TO Q4'15 DELIVERY PRICE
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 rose week over week and month on month.
The Q1 swap up US$ 0.68 (+1.41%) month o ...
Tuesday, 03 February 15
FOB NEWCASTLE COAL SWAP FOR Q4 DELIVERY CLOSED 5.86% LOWER THAN Q1 PRICE
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery rose US$ 0.26 per MT (+0.51%) week over week and declined US$ 0.02 (-0.04%) ...
Monday, 02 February 15
API 4 FOB RICHARDS BAY COAL SWAP ROSE WEEK OVER WEEK
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q1' 2015 declined month over month and day on day.
The Q1 swap has decli ...
Monday, 02 February 15
INDONESIA'S ADARO ENERGY PRODUCED 56.21 MILLION TONNES OF COAL IN 2014; UP 8% Y-O-Y
COALspot.com: PT. Adaro Energy, Indonesia’s largest coal producer, has increased coal production by 8% to 56.21 million tonnes (Mt) from both ...
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- McConnell Dowell - Australia
- Rashtriya Ispat Nigam Limited - India
- Sojitz Corporation - Japan
- GMR Energy Limited - India
- IEA Clean Coal Centre - UK
- Eastern Energy - Thailand
- Attock Cement Pakistan Limited
- International Coal Ventures Pvt Ltd - India
- New Zealand Coal & Carbon
- OPG Power Generation Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Sindya Power Generating Company Private Ltd
- Electricity Authority, New Zealand
- Kideco Jaya Agung - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Parliament of New Zealand
- MS Steel International - UAE
- Indogreen Group - Indonesia
- Bhushan Steel Limited - India
- Economic Council, Georgia
- TNB Fuel Sdn Bhd - Malaysia
- TeaM Sual Corporation - Philippines
- London Commodity Brokers - England
- Kobexindo Tractors - Indoneisa
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kohat Cement Company Ltd. - Pakistan
- Cigading International Bulk Terminal - Indonesia
- Iligan Light & Power Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Parry Sugars Refinery, India
- Madhucon Powers Ltd - India
- Directorate Of Revenue Intelligence - India
- Coalindo Energy - Indonesia
- The State Trading Corporation of India Ltd
- Bayan Resources Tbk. - Indonesia
- Ministry of Mines - Canada
- Lanco Infratech Ltd - India
- Binh Thuan Hamico - Vietnam
- PetroVietnam Power Coal Import and Supply Company
- ASAPP Information Group - India
- Metalloyd Limited - United Kingdom
- Africa Commodities Group - South Africa
- Interocean Group of Companies - India
- Aditya Birla Group - India
- Siam City Cement - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Commodity Traders Exchange
- Therma Luzon, Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Ind-Barath Power Infra Limited - India
- Mercator Lines Limited - India
- PTC India Limited - India
- White Energy Company Limited
- Indika Energy - Indonesia
- Marubeni Corporation - India
- Goldman Sachs - Singapore
- Wilmar Investment Holdings
- Sical Logistics Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Samtan Co., Ltd - South Korea
- Latin American Coal - Colombia
- Orica Mining Services - Indonesia
- Makarim & Taira - Indonesia
- Vedanta Resources Plc - India
- European Bulk Services B.V. - Netherlands
- Savvy Resources Ltd - HongKong
- Sakthi Sugars Limited - India
- Jindal Steel & Power Ltd - India
- Dalmia Cement Bharat India
- Agrawal Coal Company - India
- Globalindo Alam Lestari - Indonesia
- Carbofer General Trading SA - India
- Ministry of Transport, Egypt
- Barasentosa Lestari - Indonesia
- Meralco Power Generation, Philippines
- Billiton Holdings Pty Ltd - Australia
- San Jose City I Power Corp, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Straits Asia Resources Limited - Singapore
- Indonesian Coal Mining Association
- Kalimantan Lumbung Energi - Indonesia
- Bhatia International Limited - India
- Minerals Council of Australia
- Bulk Trading Sa - Switzerland
- Holcim Trading Pte Ltd - Singapore
- Ceylon Electricity Board - Sri Lanka
- SMG Consultants - Indonesia
- Borneo Indobara - Indonesia
- Grasim Industreis Ltd - India
- Posco Energy - South Korea
- LBH Netherlands Bv - Netherlands
- Altura Mining Limited, Indonesia
- CNBM International Corporation - China
- Indo Tambangraya Megah - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Trasteel International SA, Italy
- Alfred C Toepfer International GmbH - Germany
- VISA Power Limited - India
- Medco Energi Mining Internasional
- Thiess Contractors Indonesia
- Bhoruka Overseas - Indonesia
- Mjunction Services Limited - India
- Kumho Petrochemical, South Korea
- Intertek Mineral Services - Indonesia
- PNOC Exploration Corporation - Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Global Coal Blending Company Limited - Australia
- Maheswari Brothers Coal Limited - India
- Global Green Power PLC Corporation, Philippines
- Deloitte Consulting - India
- Uttam Galva Steels Limited - India
- Miang Besar Coal Terminal - Indonesia
- Electricity Generating Authority of Thailand
- Krishnapatnam Port Company Ltd. - India
- PowerSource Philippines DevCo
- Aboitiz Power Corporation - Philippines
- GVK Power & Infra Limited - India
- Coastal Gujarat Power Limited - India
- Eastern Coal Council - USA
- Bukit Baiduri Energy - Indonesia
- Formosa Plastics Group - Taiwan
- Commonwealth Bank - Australia
- Wood Mackenzie - Singapore
- Baramulti Group, Indonesia
- Meenaskhi Energy Private Limited - India
- SMC Global Power, Philippines
- The Treasury - Australian Government
- Tata Chemicals Ltd - India
- Mintek Dendrill Indonesia
- Xindia Steels Limited - India
- Salva Resources Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- GAC Shipping (India) Pvt Ltd
- Vizag Seaport Private Limited - India
- Edison Trading Spa - Italy
- ICICI Bank Limited - India
- Romanian Commodities Exchange
- Merrill Lynch Commodities Europe
- Simpson Spence & Young - Indonesia
- Bukit Makmur.PT - Indonesia
- The University of Queensland
- AsiaOL BioFuels Corp., Philippines
- Orica Australia Pty. Ltd.
- Asmin Koalindo Tuhup - Indonesia
- Power Finance Corporation Ltd., India
- Timah Investasi Mineral - Indoneisa
- Jaiprakash Power Ventures ltd
- Global Business Power Corporation, Philippines
- Bangladesh Power Developement Board
- Coal and Oil Company - UAE
- GN Power Mariveles Coal Plant, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sarangani Energy Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Price Waterhouse Coopers - Russia
- Georgia Ports Authority, United States
- South Luzon Thermal Energy Corporation
- Vijayanagar Sugar Pvt Ltd - India
- Central Java Power - Indonesia
- IHS Mccloskey Coal Group - USA
- Central Electricity Authority - India
- Gujarat Electricity Regulatory Commission - India
- Kapuas Tunggal Persada - Indonesia
- Antam Resourcindo - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Independent Power Producers Association of India
- Ministry of Finance - Indonesia
- Tamil Nadu electricity Board
- Bharathi Cement Corporation - India
- Singapore Mercantile Exchange
- Banpu Public Company Limited - Thailand
- Semirara Mining and Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Australian Coal Association
- Essar Steel Hazira Ltd - India
- Kartika Selabumi Mining - Indonesia
- Port Waratah Coal Services - Australia
- CIMB Investment Bank - Malaysia
- Videocon Industries ltd - India
- Siam City Cement PLC, Thailand
- Energy Link Ltd, New Zealand
- Malabar Cements Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- India Bulls Power Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Star Paper Mills Limited - India
- Mercuria Energy - Indonesia
- Oldendorff Carriers - Singapore
- Rio Tinto Coal - Australia
- Petron Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Toyota Tsusho Corporation, Japan
- Indian Oil Corporation Limited
- Energy Development Corp, Philippines
- Chamber of Mines of South Africa
- Indian Energy Exchange, India
- Karaikal Port Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Chettinad Cement Corporation Ltd - India
- Ambuja Cements Ltd - India
- Kepco SPC Power Corporation, Philippines
- Riau Bara Harum - Indonesia
- Planning Commission, India
- Neyveli Lignite Corporation Ltd, - India
- Renaissance Capital - South Africa
- Thai Mozambique Logistica
- Gujarat Sidhee Cement - India
- Kaltim Prima Coal - Indonesia
- Cement Manufacturers Association - India
- Larsen & Toubro Limited - India
- Pendopo Energi Batubara - Indonesia
- Standard Chartered Bank - UAE
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Anglo American - United Kingdom
- Heidelberg Cement - Germany
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