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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Tuesday, 20 January 15
INDONESIAN COAL OUTPUT SEEN RISING, DESPITE FALL IN ITS PRICE
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 declined month on month and week over week, but Indonesian Coal Output Seen Rising. T ...
Tuesday, 20 January 15
NEWCASTLE COAL SWAP FOR Q1' 2015 DELIVERY DECLINED 2.83% M-O-M
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery declined US$ 1.45 per MT (-2.83%) month over month and US$ 0.50 (-0.99%) we ...
Monday, 19 January 15
HBA FALL TO FRESH LOWS; COAL OVERSUPPLY WILL CONTINUE TO PUSH PRICE DOWN
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down Indonesian coal bench mark price this month to US$ 63.84. T ...
Monday, 19 January 15
CFR SOUTH CHINA COAL SWAPS REMAIN WEAK
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery declined US$ 3.37 (-5.63%) per MT month over month and US$ 0.74 (-1.29%) ...
Monday, 19 January 15
FOB RICHARDS BAY COAL SWAP FOR Q4 DELIVERY CLOSED 4% LOWER THAN Q1 DELIVERY PRICE
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q1' 2015 declined month over month and week over week.
The Q1 swap has f ...
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- Cigading International Bulk Terminal - Indonesia
- European Bulk Services B.V. - Netherlands
- Thiess Contractors Indonesia
- Chettinad Cement Corporation Ltd - India
- Australian Coal Association
- Deloitte Consulting - India
- Borneo Indobara - Indonesia
- McConnell Dowell - Australia
- Central Java Power - Indonesia
- New Zealand Coal & Carbon
- Heidelberg Cement - Germany
- South Luzon Thermal Energy Corporation
- Mercuria Energy - Indonesia
- Baramulti Group, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Riau Bara Harum - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Larsen & Toubro Limited - India
- Global Green Power PLC Corporation, Philippines
- Wood Mackenzie - Singapore
- The Treasury - Australian Government
- Rio Tinto Coal - Australia
- Barasentosa Lestari - Indonesia
- Bayan Resources Tbk. - Indonesia
- Cement Manufacturers Association - India
- Directorate Of Revenue Intelligence - India
- Neyveli Lignite Corporation Ltd, - India
- Interocean Group of Companies - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Anglo American - United Kingdom
- OPG Power Generation Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Mercator Lines Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PNOC Exploration Corporation - Philippines
- Siam City Cement PLC, Thailand
- Toyota Tsusho Corporation, Japan
- Petron Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- Indo Tambangraya Megah - Indonesia
- Formosa Plastics Group - Taiwan
- GVK Power & Infra Limited - India
- Africa Commodities Group - South Africa
- Bulk Trading Sa - Switzerland
- The State Trading Corporation of India Ltd
- Aboitiz Power Corporation - Philippines
- Independent Power Producers Association of India
- Kalimantan Lumbung Energi - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Standard Chartered Bank - UAE
- ICICI Bank Limited - India
- Antam Resourcindo - Indonesia
- Globalindo Alam Lestari - Indonesia
- Romanian Commodities Exchange
- Attock Cement Pakistan Limited
- PowerSource Philippines DevCo
- Offshore Bulk Terminal Pte Ltd, Singapore
- Star Paper Mills Limited - India
- Eastern Energy - Thailand
- Jorong Barutama Greston.PT - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indogreen Group - Indonesia
- Manunggal Multi Energi - Indonesia
- Vizag Seaport Private Limited - India
- Meralco Power Generation, Philippines
- Mintek Dendrill Indonesia
- IEA Clean Coal Centre - UK
- Petrochimia International Co. Ltd.- Taiwan
- Georgia Ports Authority, United States
- Orica Mining Services - Indonesia
- GMR Energy Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Bukit Baiduri Energy - Indonesia
- SMC Global Power, Philippines
- Global Coal Blending Company Limited - Australia
- Latin American Coal - Colombia
- Sakthi Sugars Limited - India
- Indonesian Coal Mining Association
- Iligan Light & Power Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Trasteel International SA, Italy
- Mjunction Services Limited - India
- Agrawal Coal Company - India
- San Jose City I Power Corp, Philippines
- Sinarmas Energy and Mining - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Thai Mozambique Logistica
- CNBM International Corporation - China
- Commonwealth Bank - Australia
- Edison Trading Spa - Italy
- Jindal Steel & Power Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Port Waratah Coal Services - Australia
- MS Steel International - UAE
- Holcim Trading Pte Ltd - Singapore
- Directorate General of MIneral and Coal - Indonesia
- SMG Consultants - Indonesia
- IHS Mccloskey Coal Group - USA
- Banpu Public Company Limited - Thailand
- Bhatia International Limited - India
- Jaiprakash Power Ventures ltd
- Malabar Cements Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Makarim & Taira - Indonesia
- Siam City Cement - Thailand
- Kapuas Tunggal Persada - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Altura Mining Limited, Indonesia
- Wilmar Investment Holdings
- GN Power Mariveles Coal Plant, Philippines
- Kepco SPC Power Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Marubeni Corporation - India
- Power Finance Corporation Ltd., India
- Timah Investasi Mineral - Indoneisa
- London Commodity Brokers - England
- Electricity Authority, New Zealand
- Coal and Oil Company - UAE
- Samtan Co., Ltd - South Korea
- Rashtriya Ispat Nigam Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- Central Electricity Authority - India
- Singapore Mercantile Exchange
- Ambuja Cements Ltd - India
- Energy Link Ltd, New Zealand
- Bangladesh Power Developement Board
- Binh Thuan Hamico - Vietnam
- Eastern Coal Council - USA
- Kaltim Prima Coal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Therma Luzon, Inc, Philippines
- LBH Netherlands Bv - Netherlands
- International Coal Ventures Pvt Ltd - India
- Ministry of Finance - Indonesia
- Kartika Selabumi Mining - Indonesia
- Ind-Barath Power Infra Limited - India
- Krishnapatnam Port Company Ltd. - India
- Bhushan Steel Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- VISA Power Limited - India
- Straits Asia Resources Limited - Singapore
- Grasim Industreis Ltd - India
- Videocon Industries ltd - India
- Salva Resources Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Bukit Makmur.PT - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Mines - Canada
- Sindya Power Generating Company Private Ltd
- Sical Logistics Limited - India
- Kobexindo Tractors - Indoneisa
- Madhucon Powers Ltd - India
- Global Business Power Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Coastal Gujarat Power Limited - India
- Dalmia Cement Bharat India
- Renaissance Capital - South Africa
- Indian Oil Corporation Limited
- Parry Sugars Refinery, India
- Savvy Resources Ltd - HongKong
- Tata Chemicals Ltd - India
- Energy Development Corp, Philippines
- Aditya Birla Group - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Planning Commission, India
- India Bulls Power Limited - India
- Bhoruka Overseas - Indonesia
- Merrill Lynch Commodities Europe
- Bharathi Cement Corporation - India
- AsiaOL BioFuels Corp., Philippines
- Posco Energy - South Korea
- Carbofer General Trading SA - India
- Parliament of New Zealand
- Price Waterhouse Coopers - Russia
- Kideco Jaya Agung - Indonesia
- Medco Energi Mining Internasional
- Billiton Holdings Pty Ltd - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Essar Steel Hazira Ltd - India
- Xindia Steels Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Intertek Mineral Services - Indonesia
- Oldendorff Carriers - Singapore
- Semirara Mining Corp, Philippines
- Leighton Contractors Pty Ltd - Australia
- PTC India Limited - India
- GAC Shipping (India) Pvt Ltd
- Kumho Petrochemical, South Korea
- Economic Council, Georgia
- Tamil Nadu electricity Board
- White Energy Company Limited
- Vedanta Resources Plc - India
- Gujarat Sidhee Cement - India
- Sojitz Corporation - Japan
- Lanco Infratech Ltd - India
- Indian Energy Exchange, India
- Minerals Council of Australia
- ASAPP Information Group - India
- Goldman Sachs - Singapore
- Sarangani Energy Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- TeaM Sual Corporation - Philippines
- Coalindo Energy - Indonesia
- Uttam Galva Steels Limited - India
- Ministry of Transport, Egypt
- Orica Australia Pty. Ltd.
- Australian Commodity Traders Exchange
- Gujarat Electricity Regulatory Commission - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Chamber of Mines of South Africa
- Electricity Generating Authority of Thailand
- CIMB Investment Bank - Malaysia
- Indika Energy - Indonesia
- The University of Queensland
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