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