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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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Wednesday, 21 January 15
SHIFT IN INTERNATIONAL COAL TRADE TO THE PACIFIC BASIN WILL CONTINUE - IMF
COALspot.com: The shift in international coal trade to the Pacific Basin will continue, IMF said in its latest Medium-Term Coal Market Report.
...
Wednesday, 21 January 15
MARKET INSIGHT - VASSILIS LOGOTHETIS, INTERMODAL
The World Bank has lowered its forecast for global growth in 2015 to 3% down from its previous level of 3.4% amid rising concerns over the economic ...
Wednesday, 21 January 15
THERMAL COAL PRICE OUTLOOK DEPENDENT ON INDIAN IMPORT DEMAND - MATTHEW BOYLE, CRU
COALspot.com: Supply and demand side developments in India will be an important determinant of future market dynamics and prices for thermal coal a ...
Wednesday, 21 January 15
PORT OF NEWCASTLE COAL EXPORTS JUMP 16.19% ON MONTH TO 15.80 MIL MT IN DECEMBER' 14
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port, has shipped $1.136 billi ...
Tuesday, 20 January 15
INDIA TO SURPASS THE UNITED STATES AND BECOME THE SECOND-LARGEST COAL CONSUMER IN THE WORLD BY 2019 - IMF
COALspot.com: In 2013, coal added more primary energy than any other fuel and was the fastest-growing fossil fuel, enhancing its position as the se ...
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- Ind-Barath Power Infra Limited - India
- Rashtriya Ispat Nigam Limited - India
- Sojitz Corporation - Japan
- Gujarat Mineral Development Corp Ltd - India
- Semirara Mining Corp, Philippines
- Australian Commodity Traders Exchange
- Kartika Selabumi Mining - Indonesia
- McConnell Dowell - Australia
- Grasim Industreis Ltd - India
- Larsen & Toubro Limited - India
- Oldendorff Carriers - Singapore
- Planning Commission, India
- Holcim Trading Pte Ltd - Singapore
- Global Coal Blending Company Limited - Australia
- Medco Energi Mining Internasional
- Kideco Jaya Agung - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Baramulti Group, Indonesia
- SMC Global Power, Philippines
- Edison Trading Spa - Italy
- Therma Luzon, Inc, Philippines
- Bukit Baiduri Energy - Indonesia
- Power Finance Corporation Ltd., India
- Pipit Mutiara Jaya. PT, Indonesia
- Bayan Resources Tbk. - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Thiess Contractors Indonesia
- Orica Australia Pty. Ltd.
- Meenaskhi Energy Private Limited - India
- New Zealand Coal & Carbon
- Coal and Oil Company - UAE
- Kumho Petrochemical, South Korea
- Altura Mining Limited, Indonesia
- Karaikal Port Pvt Ltd - India
- Star Paper Mills Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Petron Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Xindia Steels Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Samtan Co., Ltd - South Korea
- Electricity Generating Authority of Thailand
- Kapuas Tunggal Persada - Indonesia
- Ministry of Mines - Canada
- Formosa Plastics Group - Taiwan
- Indogreen Group - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Renaissance Capital - South Africa
- Siam City Cement - Thailand
- Eastern Energy - Thailand
- Trasteel International SA, Italy
- Cement Manufacturers Association - India
- OPG Power Generation Pvt Ltd - India
- Wood Mackenzie - Singapore
- Ceylon Electricity Board - Sri Lanka
- PetroVietnam Power Coal Import and Supply Company
- Manunggal Multi Energi - Indonesia
- Bangladesh Power Developement Board
- Indo Tambangraya Megah - Indonesia
- Lanco Infratech Ltd - India
- PNOC Exploration Corporation - Philippines
- Dalmia Cement Bharat India
- Aditya Birla Group - India
- LBH Netherlands Bv - Netherlands
- Ministry of Transport, Egypt
- Chamber of Mines of South Africa
- GVK Power & Infra Limited - India
- Barasentosa Lestari - Indonesia
- India Bulls Power Limited - India
- London Commodity Brokers - England
- VISA Power Limited - India
- Africa Commodities Group - South Africa
- Metalloyd Limited - United Kingdom
- Kohat Cement Company Ltd. - Pakistan
- Salva Resources Pvt Ltd - India
- Anglo American - United Kingdom
- CIMB Investment Bank - Malaysia
- South Luzon Thermal Energy Corporation
- Pendopo Energi Batubara - Indonesia
- Marubeni Corporation - India
- Attock Cement Pakistan Limited
- Chettinad Cement Corporation Ltd - India
- Aboitiz Power Corporation - Philippines
- PTC India Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Straits Asia Resources Limited - Singapore
- San Jose City I Power Corp, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Coastal Gujarat Power Limited - India
- SN Aboitiz Power Inc, Philippines
- Maharashtra Electricity Regulatory Commission - India
- TeaM Sual Corporation - Philippines
- Sindya Power Generating Company Private Ltd
- GAC Shipping (India) Pvt Ltd
- Standard Chartered Bank - UAE
- Indika Energy - Indonesia
- Coalindo Energy - Indonesia
- Electricity Authority, New Zealand
- Savvy Resources Ltd - HongKong
- Leighton Contractors Pty Ltd - Australia
- Meralco Power Generation, Philippines
- International Coal Ventures Pvt Ltd - India
- Ministry of Finance - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Sakthi Sugars Limited - India
- Malabar Cements Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Timah Investasi Mineral - Indoneisa
- Indonesian Coal Mining Association
- Central Electricity Authority - India
- Directorate Of Revenue Intelligence - India
- Bhatia International Limited - India
- IEA Clean Coal Centre - UK
- Independent Power Producers Association of India
- GMR Energy Limited - India
- Mintek Dendrill Indonesia
- Orica Mining Services - Indonesia
- Jaiprakash Power Ventures ltd
- Kalimantan Lumbung Energi - Indonesia
- Wilmar Investment Holdings
- CNBM International Corporation - China
- Indian Energy Exchange, India
- Maheswari Brothers Coal Limited - India
- Madhucon Powers Ltd - India
- IHS Mccloskey Coal Group - USA
- Bank of Tokyo Mitsubishi UFJ Ltd
- Latin American Coal - Colombia
- Thai Mozambique Logistica
- Romanian Commodities Exchange
- Sarangani Energy Corporation, Philippines
- MS Steel International - UAE
- Interocean Group of Companies - India
- Deloitte Consulting - India
- Vijayanagar Sugar Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Mjunction Services Limited - India
- Bukit Makmur.PT - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Bhoruka Overseas - Indonesia
- Iligan Light & Power Inc, Philippines
- Parliament of New Zealand
- Global Business Power Corporation, Philippines
- Uttam Galva Steels Limited - India
- Bhushan Steel Limited - India
- Jorong Barutama Greston.PT - Indonesia
- The State Trading Corporation of India Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Krishnapatnam Port Company Ltd. - India
- PowerSource Philippines DevCo
- Binh Thuan Hamico - Vietnam
- Tata Chemicals Ltd - India
- Sical Logistics Limited - India
- Parry Sugars Refinery, India
- Eastern Coal Council - USA
- Goldman Sachs - Singapore
- Sree Jayajothi Cements Limited - India
- The University of Queensland
- GN Power Mariveles Coal Plant, Philippines
- Singapore Mercantile Exchange
- Antam Resourcindo - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Heidelberg Cement - Germany
- Mercuria Energy - Indonesia
- Minerals Council of Australia
- Energy Link Ltd, New Zealand
- Global Green Power PLC Corporation, Philippines
- Energy Development Corp, Philippines
- Vedanta Resources Plc - India
- Agrawal Coal Company - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- The Treasury - Australian Government
- Tamil Nadu electricity Board
- Simpson Spence & Young - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Merrill Lynch Commodities Europe
- Bulk Trading Sa - Switzerland
- Makarim & Taira - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Siam City Cement PLC, Thailand
- Banpu Public Company Limited - Thailand
- Kepco SPC Power Corporation, Philippines
- Posco Energy - South Korea
- Economic Council, Georgia
- Vizag Seaport Private Limited - India
- SMG Consultants - Indonesia
- Kobexindo Tractors - Indoneisa
- Ambuja Cements Ltd - India
- Intertek Mineral Services - Indonesia
- Rio Tinto Coal - Australia
- ASAPP Information Group - India
- Toyota Tsusho Corporation, Japan
- Jindal Steel & Power Ltd - India
- Commonwealth Bank - Australia
- Port Waratah Coal Services - Australia
- Globalindo Alam Lestari - Indonesia
- Australian Coal Association
- Riau Bara Harum - Indonesia
- White Energy Company Limited
- Carbofer General Trading SA - India
- ICICI Bank Limited - India
- Georgia Ports Authority, United States
- Videocon Industries ltd - India
- European Bulk Services B.V. - Netherlands
- Asmin Koalindo Tuhup - Indonesia
- Borneo Indobara - Indonesia
- Kaltim Prima Coal - Indonesia
- Bharathi Cement Corporation - India
- Essar Steel Hazira Ltd - India
- Indian Oil Corporation Limited
- Central Java Power - Indonesia
- Gujarat Sidhee Cement - India
- Mercator Lines Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Sinarmas Energy and Mining - Indonesia
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