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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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Tuesday, 27 January 15
Q1 FOB INDONESIA COAL SWAP CLOSED AT $ 47.87 FOR WEEK ENDING JAN. 23
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 gain week over week and declined month on month.
The Q1 swap has decline US$ 0.9 ...
Tuesday, 27 January 15
Q2 FOB NEWCASTLE COAL SWAP UP 4.5% W-O-W
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery declined US$ 0.28 per MT (-0.54%) month over month and increased US$ 1.23 ( ...
Monday, 26 January 15
OVERSUPPLY, AMPLE STOCKPILES, AND LACKLUSTER UNDERLYING STEEL DEMAND KEPT COKING COAL PRICES LOW IN 2014
COALspot.com: Coking coal prices (FOB & CFR) fell 15% and 18% respectively during the year, amidst persistent oversupply, ample inventory and s ...
Monday, 26 January 15
FOB RICHARDS BAY Q2 COAL SWAP CLOSED LOWER THAN Q1 CLOSING
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 fell ...
Monday, 26 January 15
API 8 CFR SOUTH CHINA COAL SWAP CONTINUE TO SLIDE M-O-M; ROSE W-O-W
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery declined US$ 0.79 (-1.33%) per MT month over month and gained US$ 2.10&nb ...
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- Jindal Steel & Power Ltd - India
- Merrill Lynch Commodities Europe
- Thiess Contractors Indonesia
- Parliament of New Zealand
- Gujarat Electricity Regulatory Commission - India
- TNB Fuel Sdn Bhd - Malaysia
- Orica Mining Services - Indonesia
- Global Green Power PLC Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- Sical Logistics Limited - India
- Vizag Seaport Private Limited - India
- Electricity Authority, New Zealand
- VISA Power Limited - India
- Banpu Public Company Limited - Thailand
- Videocon Industries ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- PowerSource Philippines DevCo
- Latin American Coal - Colombia
- Sree Jayajothi Cements Limited - India
- Africa Commodities Group - South Africa
- Indogreen Group - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Parry Sugars Refinery, India
- The Treasury - Australian Government
- Straits Asia Resources Limited - Singapore
- AsiaOL BioFuels Corp., Philippines
- Cigading International Bulk Terminal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Meralco Power Generation, Philippines
- Siam City Cement - Thailand
- Manunggal Multi Energi - Indonesia
- Mjunction Services Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Kideco Jaya Agung - Indonesia
- Sarangani Energy Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Borneo Indobara - Indonesia
- Bhatia International Limited - India
- Dalmia Cement Bharat India
- Standard Chartered Bank - UAE
- Economic Council, Georgia
- CNBM International Corporation - China
- Tamil Nadu electricity Board
- Antam Resourcindo - Indonesia
- McConnell Dowell - Australia
- Minerals Council of Australia
- Timah Investasi Mineral - Indoneisa
- Alfred C Toepfer International GmbH - Germany
- IHS Mccloskey Coal Group - USA
- Kumho Petrochemical, South Korea
- Madhucon Powers Ltd - India
- PNOC Exploration Corporation - Philippines
- Sinarmas Energy and Mining - Indonesia
- Bhoruka Overseas - Indonesia
- Mintek Dendrill Indonesia
- Bukit Baiduri Energy - Indonesia
- Orica Australia Pty. Ltd.
- Krishnapatnam Port Company Ltd. - India
- Central Java Power - Indonesia
- Bulk Trading Sa - Switzerland
- LBH Netherlands Bv - Netherlands
- Mercuria Energy - Indonesia
- Aditya Birla Group - India
- Marubeni Corporation - India
- Riau Bara Harum - Indonesia
- Directorate Of Revenue Intelligence - India
- Ceylon Electricity Board - Sri Lanka
- Rio Tinto Coal - Australia
- SMG Consultants - Indonesia
- OPG Power Generation Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- TeaM Sual Corporation - Philippines
- Independent Power Producers Association of India
- Larsen & Toubro Limited - India
- Sindya Power Generating Company Private Ltd
- CIMB Investment Bank - Malaysia
- Wilmar Investment Holdings
- Leighton Contractors Pty Ltd - Australia
- Medco Energi Mining Internasional
- Commonwealth Bank - Australia
- Price Waterhouse Coopers - Russia
- Pipit Mutiara Jaya. PT, Indonesia
- Kapuas Tunggal Persada - Indonesia
- Global Coal Blending Company Limited - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Chettinad Cement Corporation Ltd - India
- Intertek Mineral Services - Indonesia
- Interocean Group of Companies - India
- Singapore Mercantile Exchange
- Kepco SPC Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Anglo American - United Kingdom
- Bukit Makmur.PT - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Grasim Industreis Ltd - India
- Semirara Mining Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Oldendorff Carriers - Singapore
- Mercator Lines Limited - India
- Energy Development Corp, Philippines
- Malabar Cements Ltd - India
- Siam City Cement PLC, Thailand
- Coalindo Energy - Indonesia
- Cement Manufacturers Association - India
- Indian Energy Exchange, India
- Coal and Oil Company - UAE
- Jaiprakash Power Ventures ltd
- Goldman Sachs - Singapore
- New Zealand Coal & Carbon
- Formosa Plastics Group - Taiwan
- Bharathi Cement Corporation - India
- Petrochimia International Co. Ltd.- Taiwan
- Gujarat Sidhee Cement - India
- PTC India Limited - India
- Electricity Generating Authority of Thailand
- Energy Link Ltd, New Zealand
- Power Finance Corporation Ltd., India
- Karbindo Abesyapradhi - Indoneisa
- Holcim Trading Pte Ltd - Singapore
- Attock Cement Pakistan Limited
- White Energy Company Limited
- Metalloyd Limited - United Kingdom
- Agrawal Coal Company - India
- ICICI Bank Limited - India
- Indian Oil Corporation Limited
- Salva Resources Pvt Ltd - India
- Uttam Galva Steels Limited - India
- Posco Energy - South Korea
- Ambuja Cements Ltd - India
- Pendopo Energi Batubara - Indonesia
- The State Trading Corporation of India Ltd
- Xindia Steels Limited - India
- Therma Luzon, Inc, Philippines
- Sojitz Corporation - Japan
- ASAPP Information Group - India
- Chamber of Mines of South Africa
- Deloitte Consulting - India
- Toyota Tsusho Corporation, Japan
- Bhushan Steel Limited - India
- SMC Global Power, Philippines
- Meenaskhi Energy Private Limited - India
- Carbofer General Trading SA - India
- Simpson Spence & Young - Indonesia
- South Luzon Thermal Energy Corporation
- Kaltim Prima Coal - Indonesia
- Ministry of Mines - Canada
- Offshore Bulk Terminal Pte Ltd, Singapore
- Tata Chemicals Ltd - India
- Makarim & Taira - Indonesia
- Australian Commodity Traders Exchange
- Indika Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Edison Trading Spa - Italy
- Romanian Commodities Exchange
- Renaissance Capital - South Africa
- Trasteel International SA, Italy
- GMR Energy Limited - India
- Vedanta Resources Plc - India
- Billiton Holdings Pty Ltd - Australia
- Iligan Light & Power Inc, Philippines
- Coastal Gujarat Power Limited - India
- European Bulk Services B.V. - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Thai Mozambique Logistica
- MS Steel International - UAE
- Sakthi Sugars Limited - India
- Baramulti Group, Indonesia
- Barasentosa Lestari - Indonesia
- Port Waratah Coal Services - Australia
- Indo Tambangraya Megah - Indonesia
- Savvy Resources Ltd - HongKong
- Ministry of Finance - Indonesia
- Lanco Infratech Ltd - India
- GAC Shipping (India) Pvt Ltd
- Central Electricity Authority - India
- Bahari Cakrawala Sebuku - Indonesia
- Bayan Resources Tbk. - Indonesia
- San Jose City I Power Corp, Philippines
- Altura Mining Limited, Indonesia
- Aboitiz Power Corporation - Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Australian Coal Association
- Eastern Energy - Thailand
- IEA Clean Coal Centre - UK
- Eastern Coal Council - USA
- Neyveli Lignite Corporation Ltd, - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Semirara Mining and Power Corporation, Philippines
- Bangladesh Power Developement Board
- India Bulls Power Limited - India
- GVK Power & Infra Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Ind-Barath Power Infra Limited - India
- Planning Commission, India
- Star Paper Mills Limited - India
- Kartika Selabumi Mining - Indonesia
- Heidelberg Cement - Germany
- SN Aboitiz Power Inc, Philippines
- Karaikal Port Pvt Ltd - India
- Ministry of Transport, Egypt
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Global Business Power Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Binh Thuan Hamico - Vietnam
- Jorong Barutama Greston.PT - Indonesia
- London Commodity Brokers - England
- Samtan Co., Ltd - South Korea
- The University of Queensland
- Bukit Asam (Persero) Tbk - Indonesia
- Indonesian Coal Mining Association
- Kobexindo Tractors - Indoneisa
- Petron Corporation, Philippines
- Georgia Ports Authority, United States
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