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