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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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Friday, 30 January 15
CAN BULKER CONVERSIONS SPOIL THE TANKER MARKET'S PARTY? - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Oversupply of tonnage has always been in the back of the head of ship owners when it comes to taking advantage of favorable market conditions. As s ...
Thursday, 29 January 15
CHINA ENERGY DEMAND MUST BE REVIEWED DUE TO FUNDAMENTAL ECONOMIC CHANGES - WOOD MACKENZIE
New patterns emerging as energy demand growth decoupled significantly from GDP growth for the first time in 2014
Wood Mackenzie says 2014 was ...
Thursday, 29 January 15
CAPE MARKET IS STILL STRUGGLING WITH LOW DEMAND AND LOW COMMODITY PRICES
Handy
Supramax rates are heading south with slipping rates all across the block. USG activity is slow with mid-week levels in the mid 8.000s, Fea ...
Wednesday, 28 January 15
MARKET INSIGHT - STELIOS KOLLINTZAS
With most traders having returned to action from year end festivities, we have already seen signs of activity in the specialized product markets. L ...
Wednesday, 28 January 15
CAPES CONTINUED THEIR UPWARD MOVEMENT LAST WEEK - INTERMODAL
COALspot.com: The Dry Bulk market displayed a mirror performance of that of the week prior, with the Capesize market correcting further upwards and ...
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- Price Waterhouse Coopers - Russia
- Siam City Cement - Thailand
- The Treasury - Australian Government
- Kaltim Prima Coal - Indonesia
- Sindya Power Generating Company Private Ltd
- Semirara Mining Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- San Jose City I Power Corp, Philippines
- Australian Coal Association
- Tata Chemicals Ltd - India
- Aboitiz Power Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- Maheswari Brothers Coal Limited - India
- Dalmia Cement Bharat India
- Mercator Lines Limited - India
- Chettinad Cement Corporation Ltd - India
- Timah Investasi Mineral - Indoneisa
- Energy Development Corp, Philippines
- Indonesian Coal Mining Association
- Semirara Mining and Power Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Vijayanagar Sugar Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Siam City Cement PLC, Thailand
- Planning Commission, India
- Indian Oil Corporation Limited
- Makarim & Taira - Indonesia
- Merrill Lynch Commodities Europe
- Parliament of New Zealand
- Vizag Seaport Private Limited - India
- Marubeni Corporation - India
- Toyota Tsusho Corporation, Japan
- Global Business Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Metalloyd Limited - United Kingdom
- GN Power Mariveles Coal Plant, Philippines
- Gujarat Sidhee Cement - India
- Maharashtra Electricity Regulatory Commission - India
- Iligan Light & Power Inc, Philippines
- Bhushan Steel Limited - India
- New Zealand Coal & Carbon
- McConnell Dowell - Australia
- Miang Besar Coal Terminal - Indonesia
- Chamber of Mines of South Africa
- Ministry of Finance - Indonesia
- GMR Energy Limited - India
- Krishnapatnam Port Company Ltd. - India
- Barasentosa Lestari - Indonesia
- PNOC Exploration Corporation - Philippines
- Therma Luzon, Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Coastal Gujarat Power Limited - India
- Coalindo Energy - Indonesia
- Goldman Sachs - Singapore
- Indika Energy - Indonesia
- Coal and Oil Company - UAE
- Essar Steel Hazira Ltd - India
- Bangladesh Power Developement Board
- Orica Mining Services - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Leighton Contractors Pty Ltd - Australia
- Energy Link Ltd, New Zealand
- Billiton Holdings Pty Ltd - Australia
- Intertek Mineral Services - Indonesia
- Lanco Infratech Ltd - India
- Meralco Power Generation, Philippines
- PowerSource Philippines DevCo
- Ministry of Transport, Egypt
- IEA Clean Coal Centre - UK
- Global Coal Blending Company Limited - Australia
- OPG Power Generation Pvt Ltd - India
- Latin American Coal - Colombia
- Trasteel International SA, Italy
- Renaissance Capital - South Africa
- Mjunction Services Limited - India
- Indogreen Group - Indonesia
- GVK Power & Infra Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- SMG Consultants - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Rashtriya Ispat Nigam Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- PTC India Limited - India
- CNBM International Corporation - China
- Eastern Coal Council - USA
- Malabar Cements Ltd - India
- Madhucon Powers Ltd - India
- Wilmar Investment Holdings
- Xindia Steels Limited - India
- White Energy Company Limited
- VISA Power Limited - India
- Sree Jayajothi Cements Limited - India
- Jaiprakash Power Ventures ltd
- Commonwealth Bank - Australia
- Cigading International Bulk Terminal - Indonesia
- Cement Manufacturers Association - India
- MS Steel International - UAE
- Bukit Makmur.PT - Indonesia
- South Luzon Thermal Energy Corporation
- Ambuja Cements Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Ceylon Electricity Board - Sri Lanka
- Straits Asia Resources Limited - Singapore
- Banpu Public Company Limited - Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Mercuria Energy - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Larsen & Toubro Limited - India
- Star Paper Mills Limited - India
- Parry Sugars Refinery, India
- Vedanta Resources Plc - India
- Grasim Industreis Ltd - India
- Uttam Galva Steels Limited - India
- Carbofer General Trading SA - India
- Asmin Koalindo Tuhup - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Ind-Barath Power Infra Limited - India
- Kideco Jaya Agung - Indonesia
- Salva Resources Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Samtan Co., Ltd - South Korea
- The University of Queensland
- Indian Energy Exchange, India
- Petron Corporation, Philippines
- Port Waratah Coal Services - Australia
- LBH Netherlands Bv - Netherlands
- Africa Commodities Group - South Africa
- Antam Resourcindo - Indonesia
- Oldendorff Carriers - Singapore
- Formosa Plastics Group - Taiwan
- Indo Tambangraya Megah - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Anglo American - United Kingdom
- Georgia Ports Authority, United States
- Sakthi Sugars Limited - India
- India Bulls Power Limited - India
- European Bulk Services B.V. - Netherlands
- Offshore Bulk Terminal Pte Ltd, Singapore
- Thai Mozambique Logistica
- Central Electricity Authority - India
- Medco Energi Mining Internasional
- Wood Mackenzie - Singapore
- Tamil Nadu electricity Board
- ASAPP Information Group - India
- IHS Mccloskey Coal Group - USA
- Standard Chartered Bank - UAE
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kohat Cement Company Ltd. - Pakistan
- ICICI Bank Limited - India
- Posco Energy - South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- TeaM Sual Corporation - Philippines
- Kalimantan Lumbung Energi - Indonesia
- Borneo Indobara - Indonesia
- Bhatia International Limited - India
- Romanian Commodities Exchange
- Bulk Trading Sa - Switzerland
- Independent Power Producers Association of India
- Kepco SPC Power Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Deloitte Consulting - India
- International Coal Ventures Pvt Ltd - India
- Central Java Power - Indonesia
- Global Green Power PLC Corporation, Philippines
- Edison Trading Spa - Italy
- Electricity Authority, New Zealand
- Kumho Petrochemical, South Korea
- London Commodity Brokers - England
- Sical Logistics Limited - India
- Australian Commodity Traders Exchange
- The State Trading Corporation of India Ltd
- Bayan Resources Tbk. - Indonesia
- Savvy Resources Ltd - HongKong
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Meenaskhi Energy Private Limited - India
- Minerals Council of Australia
- Agrawal Coal Company - India
- TNB Fuel Sdn Bhd - Malaysia
- Jindal Steel & Power Ltd - India
- Manunggal Multi Energi - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Electricity Generating Authority of Thailand
- SMC Global Power, Philippines
- Kobexindo Tractors - Indoneisa
- Globalindo Alam Lestari - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Sarangani Energy Corporation, Philippines
- Attock Cement Pakistan Limited
- Bhoruka Overseas - Indonesia
- Kartika Selabumi Mining - Indonesia
- Baramulti Group, Indonesia
- Rio Tinto Coal - Australia
- Ministry of Mines - Canada
- Bharathi Cement Corporation - India
- Karaikal Port Pvt Ltd - India
- Thiess Contractors Indonesia
- CIMB Investment Bank - Malaysia
- Mintek Dendrill Indonesia
- Interocean Group of Companies - India
- AsiaOL BioFuels Corp., Philippines
- Orica Australia Pty. Ltd.
- Directorate General of MIneral and Coal - Indonesia
- Pendopo Energi Batubara - Indonesia
- Economic Council, Georgia
- Simpson Spence & Young - Indonesia
- Sojitz Corporation - Japan
- Bank of Tokyo Mitsubishi UFJ Ltd
- SN Aboitiz Power Inc, Philippines
- Riau Bara Harum - Indonesia
- Power Finance Corporation Ltd., India
- Heidelberg Cement - Germany
- Videocon Industries ltd - India
- Aditya Birla Group - India
- Kapuas Tunggal Persada - Indonesia
- Eastern Energy - Thailand
- Singapore Mercantile Exchange
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