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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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Sunday, 25 January 15
PANAMAX FREIGHT RATES STILL FALLING
COALspot.com: The BDI was slightly down this week to 720 points. The BDI lost 2.83 pct week on week.
The cape index continued its upward trend ...
Friday, 23 January 15
U.S. WEEKLY COAL PRODUCTION FOR WEEK ENDING JAN. 17 UP 2.5%
COALspot.com – United States the world's one of the largest coal producers, produced approximately 19.4 million short tons (mmst) of coal ...
Thursday, 22 January 15
PANAMAX: A SOFTER TONE AND OVERALL A SLUGGISH MARKET - FEARNLEYS
Handy
The handy and supra market has experienced yet another week with slow activity and softening rates in both hemispheres, broker Fearnleys AS ...
Thursday, 22 January 15
BUMI RESOURCES POSTS NET INCOME OF $13.3 MILLION 9M-2014
COALspot.com: Bumi Resources, Indonesia’s largest coal miner, reported today that, the company has recorded a net income of $13.3 million for ...
Wednesday, 21 January 15
PANAMAX MARKET MOVED SIDEWAYS OVERALL LAST WEEK - INTERMODAL
COALspot.com: The positive sentiment in which the week prior ended carried on through-out last week as well, the end of which marked the first posi ...
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- Simpson Spence & Young - Indonesia
- Jindal Steel & Power Ltd - India
- San Jose City I Power Corp, Philippines
- Gujarat Mineral Development Corp Ltd - India
- ICICI Bank Limited - India
- GN Power Mariveles Coal Plant, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Meralco Power Generation, Philippines
- Eastern Coal Council - USA
- CIMB Investment Bank - Malaysia
- Minerals Council of Australia
- Bahari Cakrawala Sebuku - Indonesia
- Interocean Group of Companies - India
- Bharathi Cement Corporation - India
- Savvy Resources Ltd - HongKong
- Baramulti Group, Indonesia
- Orica Australia Pty. Ltd.
- Sinarmas Energy and Mining - Indonesia
- Electricity Generating Authority of Thailand
- PNOC Exploration Corporation - Philippines
- Vizag Seaport Private Limited - India
- Krishnapatnam Port Company Ltd. - India
- Dalmia Cement Bharat India
- VISA Power Limited - India
- Aboitiz Power Corporation - Philippines
- Coalindo Energy - Indonesia
- Indo Tambangraya Megah - Indonesia
- Anglo American - United Kingdom
- The Treasury - Australian Government
- Parliament of New Zealand
- Grasim Industreis Ltd - India
- Marubeni Corporation - India
- Bhatia International Limited - India
- Global Green Power PLC Corporation, Philippines
- Port Waratah Coal Services - Australia
- Asmin Koalindo Tuhup - Indonesia
- IHS Mccloskey Coal Group - USA
- Karbindo Abesyapradhi - Indoneisa
- Banpu Public Company Limited - Thailand
- Chamber of Mines of South Africa
- GAC Shipping (India) Pvt Ltd
- Mercuria Energy - Indonesia
- Eastern Energy - Thailand
- White Energy Company Limited
- Altura Mining Limited, Indonesia
- GMR Energy Limited - India
- Heidelberg Cement - Germany
- Holcim Trading Pte Ltd - Singapore
- Trasteel International SA, Italy
- Energy Link Ltd, New Zealand
- Ambuja Cements Ltd - India
- Indonesian Coal Mining Association
- Singapore Mercantile Exchange
- Pendopo Energi Batubara - Indonesia
- Attock Cement Pakistan Limited
- Electricity Authority, New Zealand
- Kideco Jaya Agung - Indonesia
- Mintek Dendrill Indonesia
- Therma Luzon, Inc, Philippines
- Ministry of Finance - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Neyveli Lignite Corporation Ltd, - India
- Formosa Plastics Group - Taiwan
- Bayan Resources Tbk. - Indonesia
- Chettinad Cement Corporation Ltd - India
- Kaltim Prima Coal - Indonesia
- Aditya Birla Group - India
- SMG Consultants - Indonesia
- Global Business Power Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Coastal Gujarat Power Limited - India
- Romanian Commodities Exchange
- Kumho Petrochemical, South Korea
- Wood Mackenzie - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Offshore Bulk Terminal Pte Ltd, Singapore
- TeaM Sual Corporation - Philippines
- Africa Commodities Group - South Africa
- London Commodity Brokers - England
- Semirara Mining and Power Corporation, Philippines
- Indika Energy - Indonesia
- Mercator Lines Limited - India
- Cigading International Bulk Terminal - Indonesia
- Carbofer General Trading SA - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Kobexindo Tractors - Indoneisa
- Georgia Ports Authority, United States
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Power Finance Corporation Ltd., India
- Semirara Mining Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Ministry of Transport, Egypt
- SMC Global Power, Philippines
- Price Waterhouse Coopers - Russia
- Bhoruka Overseas - Indonesia
- Kepco SPC Power Corporation, Philippines
- Star Paper Mills Limited - India
- Vedanta Resources Plc - India
- Borneo Indobara - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- ASAPP Information Group - India
- Binh Thuan Hamico - Vietnam
- Videocon Industries ltd - India
- Indogreen Group - Indonesia
- Timah Investasi Mineral - Indoneisa
- Bukit Asam (Persero) Tbk - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Thiess Contractors Indonesia
- Oldendorff Carriers - Singapore
- Alfred C Toepfer International GmbH - Germany
- Sojitz Corporation - Japan
- Thai Mozambique Logistica
- Tata Chemicals Ltd - India
- Barasentosa Lestari - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Siam City Cement PLC, Thailand
- Indian Oil Corporation Limited
- Maheswari Brothers Coal Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Sical Logistics Limited - India
- Kartika Selabumi Mining - Indonesia
- Medco Energi Mining Internasional
- Goldman Sachs - Singapore
- Larsen & Toubro Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Xindia Steels Limited - India
- Intertek Mineral Services - Indonesia
- The University of Queensland
- Siam City Cement - Thailand
- Sindya Power Generating Company Private Ltd
- Globalindo Alam Lestari - Indonesia
- Gujarat Sidhee Cement - India
- Indian Energy Exchange, India
- McConnell Dowell - Australia
- Metalloyd Limited - United Kingdom
- Madhucon Powers Ltd - India
- Wilmar Investment Holdings
- Kalimantan Lumbung Energi - Indonesia
- Lanco Infratech Ltd - India
- SN Aboitiz Power Inc, Philippines
- Coal and Oil Company - UAE
- Bukit Baiduri Energy - Indonesia
- Cement Manufacturers Association - India
- Malabar Cements Ltd - India
- Jaiprakash Power Ventures ltd
- Independent Power Producers Association of India
- GVK Power & Infra Limited - India
- The State Trading Corporation of India Ltd
- Economic Council, Georgia
- Renaissance Capital - South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Ministry of Mines - Canada
- Ceylon Electricity Board - Sri Lanka
- Petron Corporation, Philippines
- Central Java Power - Indonesia
- International Coal Ventures Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- Mjunction Services Limited - India
- Karaikal Port Pvt Ltd - India
- Rio Tinto Coal - Australia
- Australian Commodity Traders Exchange
- Meenaskhi Energy Private Limited - India
- Sree Jayajothi Cements Limited - India
- Australian Coal Association
- Vijayanagar Sugar Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Miang Besar Coal Terminal - Indonesia
- PTC India Limited - India
- Central Electricity Authority - India
- Directorate Of Revenue Intelligence - India
- Billiton Holdings Pty Ltd - Australia
- Leighton Contractors Pty Ltd - Australia
- European Bulk Services B.V. - Netherlands
- Standard Chartered Bank - UAE
- Planning Commission, India
- Bhushan Steel Limited - India
- MS Steel International - UAE
- Sakthi Sugars Limited - India
- Sarangani Energy Corporation, Philippines
- Tamil Nadu electricity Board
- AsiaOL BioFuels Corp., Philippines
- IEA Clean Coal Centre - UK
- Straits Asia Resources Limited - Singapore
- Antam Resourcindo - Indonesia
- Agrawal Coal Company - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Maharashtra Electricity Regulatory Commission - India
- Global Coal Blending Company Limited - Australia
- CNBM International Corporation - China
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Merrill Lynch Commodities Europe
- Makarim & Taira - Indonesia
- Latin American Coal - Colombia
- Ind-Barath Power Infra Limited - India
- Bangladesh Power Developement Board
- Bulk Trading Sa - Switzerland
- Deloitte Consulting - India
- PowerSource Philippines DevCo
- Energy Development Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Samtan Co., Ltd - South Korea
- Edison Trading Spa - Italy
- LBH Netherlands Bv - Netherlands
- Essar Steel Hazira Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Salva Resources Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Commonwealth Bank - Australia
- Orica Mining Services - Indonesia
- OPG Power Generation Pvt Ltd - India
- Uttam Galva Steels Limited - India
- New Zealand Coal & Carbon
- Parry Sugars Refinery, India
- Bukit Makmur.PT - Indonesia
- India Bulls Power Limited - India
- Posco Energy - South Korea
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