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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Monday, 02 February 15
API 8 CFR SOUTH CHINA COAL SWAP PICKS UP W-O-W
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery declined US$ 0.81 (-1.36%) per MT month over month and gained US$ 0.18&nb ...
Monday, 02 February 15
SOUTH KOREA'S KOMIPO INVITES BIDS FOR 280K MT OF SUB-BITUMINOUS COAL
COALspot.com: South Korean state-owned utility Korea Midland Power (KOMIPO) issued an new tender to buy total 280,000 MT of Sub-bituminous coal coa ...
Sunday, 01 February 15
INDONESIA-TO-INDIA COAL FREIGHT RATES REMAIN WEAK NEXT WEEK
COALspot.com: The BDI continued its fall reached lowest levels since 1986 this week.
The BDI declined 15.55 pct to 608 points on Friday 30, Ja ...
Friday, 30 January 15
CONTANGO AND TANKERS - SKULD
KNOWLEDGE TO ELEVATE
Like an invitation to a dance, the word contango may have some people flustered, but for tanker owners this market phenome ...
Friday, 30 January 15
U.S. YEAR-TO-DATE COAL PRODUCTION REACHED 65.7 MMST
COALspot.com – United States the world's one of the largest coal producers, produced approximately 19.9 million short tons (mmst) of coal ...
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- Heidelberg Cement - Germany
- PetroVietnam Power Coal Import and Supply Company
- Simpson Spence & Young - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- International Coal Ventures Pvt Ltd - India
- White Energy Company Limited
- OPG Power Generation Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Kobexindo Tractors - Indoneisa
- Attock Cement Pakistan Limited
- Kideco Jaya Agung - Indonesia
- Straits Asia Resources Limited - Singapore
- London Commodity Brokers - England
- Ministry of Finance - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- PNOC Exploration Corporation - Philippines
- Dalmia Cement Bharat India
- Petron Corporation, Philippines
- Thai Mozambique Logistica
- Latin American Coal - Colombia
- VISA Power Limited - India
- Power Finance Corporation Ltd., India
- Bukit Baiduri Energy - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indian Energy Exchange, India
- Vizag Seaport Private Limited - India
- Kaltim Prima Coal - Indonesia
- Australian Coal Association
- Ministry of Mines - Canada
- Asmin Koalindo Tuhup - Indonesia
- Jaiprakash Power Ventures ltd
- The Treasury - Australian Government
- Romanian Commodities Exchange
- Bhatia International Limited - India
- Economic Council, Georgia
- Aditya Birla Group - India
- Pipit Mutiara Jaya. PT, Indonesia
- Kepco SPC Power Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Iligan Light & Power Inc, Philippines
- Coal and Oil Company - UAE
- Borneo Indobara - Indonesia
- Merrill Lynch Commodities Europe
- Star Paper Mills Limited - India
- Uttam Galva Steels Limited - India
- Tamil Nadu electricity Board
- Sarangani Energy Corporation, Philippines
- Rio Tinto Coal - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Xindia Steels Limited - India
- Coalindo Energy - Indonesia
- Indonesian Coal Mining Association
- Savvy Resources Ltd - HongKong
- CNBM International Corporation - China
- European Bulk Services B.V. - Netherlands
- Chettinad Cement Corporation Ltd - India
- Trasteel International SA, Italy
- Sical Logistics Limited - India
- Barasentosa Lestari - Indonesia
- GAC Shipping (India) Pvt Ltd
- San Jose City I Power Corp, Philippines
- Leighton Contractors Pty Ltd - Australia
- Chamber of Mines of South Africa
- Metalloyd Limited - United Kingdom
- Oldendorff Carriers - Singapore
- Orica Australia Pty. Ltd.
- Kalimantan Lumbung Energi - Indonesia
- SMG Consultants - Indonesia
- Medco Energi Mining Internasional
- PowerSource Philippines DevCo
- Petrochimia International Co. Ltd.- Taiwan
- Standard Chartered Bank - UAE
- Sindya Power Generating Company Private Ltd
- GVK Power & Infra Limited - India
- Larsen & Toubro Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ceylon Electricity Board - Sri Lanka
- Rashtriya Ispat Nigam Limited - India
- Meenaskhi Energy Private Limited - India
- Independent Power Producers Association of India
- Semirara Mining Corp, Philippines
- Holcim Trading Pte Ltd - Singapore
- Indika Energy - Indonesia
- Planning Commission, India
- Thiess Contractors Indonesia
- Cement Manufacturers Association - India
- AsiaOL BioFuels Corp., Philippines
- Ministry of Transport, Egypt
- Carbofer General Trading SA - India
- Bayan Resources Tbk. - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Bhushan Steel Limited - India
- Indogreen Group - Indonesia
- Parry Sugars Refinery, India
- CIMB Investment Bank - Malaysia
- GMR Energy Limited - India
- Videocon Industries ltd - India
- Central Electricity Authority - India
- Alfred C Toepfer International GmbH - Germany
- Siam City Cement - Thailand
- The State Trading Corporation of India Ltd
- Cigading International Bulk Terminal - Indonesia
- SMC Global Power, Philippines
- Sojitz Corporation - Japan
- McConnell Dowell - Australia
- Kumho Petrochemical, South Korea
- LBH Netherlands Bv - Netherlands
- Gujarat Sidhee Cement - India
- Bangladesh Power Developement Board
- Manunggal Multi Energi - Indonesia
- Jindal Steel & Power Ltd - India
- Essar Steel Hazira Ltd - India
- Eastern Coal Council - USA
- Toyota Tsusho Corporation, Japan
- Marubeni Corporation - India
- Price Waterhouse Coopers - Russia
- Timah Investasi Mineral - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Bharathi Cement Corporation - India
- Parliament of New Zealand
- Altura Mining Limited, Indonesia
- MS Steel International - UAE
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The University of Queensland
- Kohat Cement Company Ltd. - Pakistan
- Kartika Selabumi Mining - Indonesia
- Posco Energy - South Korea
- Formosa Plastics Group - Taiwan
- Electricity Generating Authority of Thailand
- Meralco Power Generation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Neyveli Lignite Corporation Ltd, - India
- TeaM Sual Corporation - Philippines
- Mjunction Services Limited - India
- Makarim & Taira - Indonesia
- Sakthi Sugars Limited - India
- PTC India Limited - India
- Goldman Sachs - Singapore
- Wilmar Investment Holdings
- Kapuas Tunggal Persada - Indonesia
- Mercuria Energy - Indonesia
- Deloitte Consulting - India
- Grasim Industreis Ltd - India
- Anglo American - United Kingdom
- Africa Commodities Group - South Africa
- Binh Thuan Hamico - Vietnam
- Directorate General of MIneral and Coal - Indonesia
- Energy Link Ltd, New Zealand
- Siam City Cement PLC, Thailand
- Mercator Lines Limited - India
- Lanco Infratech Ltd - India
- Riau Bara Harum - Indonesia
- South Luzon Thermal Energy Corporation
- Directorate Of Revenue Intelligence - India
- Interocean Group of Companies - India
- Bulk Trading Sa - Switzerland
- Coastal Gujarat Power Limited - India
- Electricity Authority, New Zealand
- Maheswari Brothers Coal Limited - India
- Gujarat Electricity Regulatory Commission - India
- Intertek Mineral Services - Indonesia
- Samtan Co., Ltd - South Korea
- Edison Trading Spa - Italy
- Semirara Mining and Power Corporation, Philippines
- Renaissance Capital - South Africa
- Ind-Barath Power Infra Limited - India
- Sinarmas Energy and Mining - Indonesia
- Australian Commodity Traders Exchange
- Malabar Cements Ltd - India
- Pendopo Energi Batubara - Indonesia
- Therma Luzon, Inc, Philippines
- Singapore Mercantile Exchange
- Indian Oil Corporation Limited
- Salva Resources Pvt Ltd - India
- Wood Mackenzie - Singapore
- Bukit Makmur.PT - Indonesia
- Central Java Power - Indonesia
- Eastern Energy - Thailand
- Mintek Dendrill Indonesia
- IEA Clean Coal Centre - UK
- New Zealand Coal & Carbon
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Minerals Council of Australia
- Bahari Cakrawala Sebuku - Indonesia
- Georgia Ports Authority, United States
- Global Green Power PLC Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SN Aboitiz Power Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- ICICI Bank Limited - India
- Energy Development Corp, Philippines
- Ambuja Cements Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Bukit Asam (Persero) Tbk - Indonesia
- Port Waratah Coal Services - Australia
- Commonwealth Bank - Australia
- Sree Jayajothi Cements Limited - India
- Miang Besar Coal Terminal - Indonesia
- Baramulti Group, Indonesia
- India Bulls Power Limited - India
- Globalindo Alam Lestari - Indonesia
- ASAPP Information Group - India
- Billiton Holdings Pty Ltd - Australia
- Madhucon Powers Ltd - India
- Karaikal Port Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Banpu Public Company Limited - Thailand
- Tata Chemicals Ltd - India
- Global Business Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Agrawal Coal Company - India
- Global Coal Blending Company Limited - Australia
- Vedanta Resources Plc - India
- IHS Mccloskey Coal Group - USA
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