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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, 23 February 24
STRONG OUTLOOK FOR THE TANKER MARKET IN 2024 AND BEYOND - DNV
Several factors have aligned over the past two years to create a robust and profitable market for tanker owners, which is expected to drive newbuil ...
Friday, 23 February 24
AUSTRALIAN COAL FLOWS TO ASIA HOVER ABOVE LAST YEAR’S VOLUME TONNES - SIGNAL GROUP
In the final days of February, the dry bulk freight market appeared to maintain a relatively stable momentum, particularly evident in the large ves ...
Friday, 23 February 24
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Thursday, 22 February 24
BIMCO PUBLISHES SHIP FINANCING FORMS TO ENSURE UNINTERRUPTED USE OF SHIPS
BIMCO has published two standard Quiet Enjoyment Letters (QELs), the first standard form QELs available to the industry, to offer a tool that can e ...
Monday, 19 February 24
METALS INVESTMENT: THE DARKEST HOUR IS JUST BEFORE THE DAWN - WOOD MACKENZIE
Things often seem at their worst just before they get better. In terms of meeting our net zero 2050 scenario, we’ve reached a watershed momen ...
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Showing 31 to 35 news of total 6871 |
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- TNB Fuel Sdn Bhd - Malaysia
- PetroVietnam Power Coal Import and Supply Company
- Riau Bara Harum - Indonesia
- Electricity Generating Authority of Thailand
- Wilmar Investment Holdings
- Karaikal Port Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- OPG Power Generation Pvt Ltd - India
- Chamber of Mines of South Africa
- Ambuja Cements Ltd - India
- Gujarat Sidhee Cement - India
- Toyota Tsusho Corporation, Japan
- Mintek Dendrill Indonesia
- Formosa Plastics Group - Taiwan
- Ministry of Transport, Egypt
- Straits Asia Resources Limited - Singapore
- Manunggal Multi Energi - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Rashtriya Ispat Nigam Limited - India
- CNBM International Corporation - China
- Global Green Power PLC Corporation, Philippines
- Ministry of Finance - Indonesia
- Savvy Resources Ltd - HongKong
- Grasim Industreis Ltd - India
- ICICI Bank Limited - India
- Ind-Barath Power Infra Limited - India
- Trasteel International SA, Italy
- Posco Energy - South Korea
- Meenaskhi Energy Private Limited - India
- Vedanta Resources Plc - India
- Altura Mining Limited, Indonesia
- Videocon Industries ltd - India
- Borneo Indobara - Indonesia
- Australian Coal Association
- Kobexindo Tractors - Indoneisa
- New Zealand Coal & Carbon
- Larsen & Toubro Limited - India
- Commonwealth Bank - Australia
- Central Electricity Authority - India
- Globalindo Alam Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Jorong Barutama Greston.PT - Indonesia
- Vizag Seaport Private Limited - India
- Attock Cement Pakistan Limited
- Bharathi Cement Corporation - India
- Leighton Contractors Pty Ltd - Australia
- Minerals Council of Australia
- Karbindo Abesyapradhi - Indoneisa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Xindia Steels Limited - India
- CIMB Investment Bank - Malaysia
- Power Finance Corporation Ltd., India
- Sakthi Sugars Limited - India
- Rio Tinto Coal - Australia
- Alfred C Toepfer International GmbH - Germany
- Port Waratah Coal Services - Australia
- Global Business Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Semirara Mining Corp, Philippines
- Wood Mackenzie - Singapore
- Price Waterhouse Coopers - Russia
- Miang Besar Coal Terminal - Indonesia
- Eastern Coal Council - USA
- The State Trading Corporation of India Ltd
- Tamil Nadu electricity Board
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kaltim Prima Coal - Indonesia
- Goldman Sachs - Singapore
- Siam City Cement - Thailand
- Sojitz Corporation - Japan
- Gujarat Electricity Regulatory Commission - India
- Binh Thuan Hamico - Vietnam
- PNOC Exploration Corporation - Philippines
- Bhushan Steel Limited - India
- IEA Clean Coal Centre - UK
- The University of Queensland
- Orica Australia Pty. Ltd.
- VISA Power Limited - India
- Georgia Ports Authority, United States
- Indo Tambangraya Megah - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Indian Oil Corporation Limited
- Baramulti Group, Indonesia
- Ceylon Electricity Board - Sri Lanka
- Coal and Oil Company - UAE
- Dalmia Cement Bharat India
- Sree Jayajothi Cements Limited - India
- Bulk Trading Sa - Switzerland
- Sinarmas Energy and Mining - Indonesia
- Anglo American - United Kingdom
- International Coal Ventures Pvt Ltd - India
- Singapore Mercantile Exchange
- London Commodity Brokers - England
- Vijayanagar Sugar Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Chettinad Cement Corporation Ltd - India
- Bukit Baiduri Energy - Indonesia
- Central Java Power - Indonesia
- Meralco Power Generation, Philippines
- San Jose City I Power Corp, Philippines
- Indogreen Group - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- White Energy Company Limited
- Global Coal Blending Company Limited - Australia
- Malabar Cements Ltd - India
- Mercator Lines Limited - India
- Mjunction Services Limited - India
- GAC Shipping (India) Pvt Ltd
- Uttam Galva Steels Limited - India
- Coastal Gujarat Power Limited - India
- Economic Council, Georgia
- Standard Chartered Bank - UAE
- TeaM Sual Corporation - Philippines
- Indian Energy Exchange, India
- Sarangani Energy Corporation, Philippines
- PTC India Limited - India
- MS Steel International - UAE
- LBH Netherlands Bv - Netherlands
- Iligan Light & Power Inc, Philippines
- McConnell Dowell - Australia
- Parry Sugars Refinery, India
- Energy Link Ltd, New Zealand
- Indika Energy - Indonesia
- Deloitte Consulting - India
- Metalloyd Limited - United Kingdom
- Jindal Steel & Power Ltd - India
- Holcim Trading Pte Ltd - Singapore
- European Bulk Services B.V. - Netherlands
- Carbofer General Trading SA - India
- Planning Commission, India
- Bukit Makmur.PT - Indonesia
- Oldendorff Carriers - Singapore
- Antam Resourcindo - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Krishnapatnam Port Company Ltd. - India
- Aboitiz Power Corporation - Philippines
- Energy Development Corp, Philippines
- Kideco Jaya Agung - Indonesia
- Marubeni Corporation - India
- Heidelberg Cement - Germany
- Salva Resources Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- SMG Consultants - Indonesia
- Madhucon Powers Ltd - India
- Tata Chemicals Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- PowerSource Philippines DevCo
- Parliament of New Zealand
- Bangladesh Power Developement Board
- Thai Mozambique Logistica
- Thiess Contractors Indonesia
- Star Paper Mills Limited - India
- Agrawal Coal Company - India
- Eastern Energy - Thailand
- GMR Energy Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Directorate Of Revenue Intelligence - India
- Lanco Infratech Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sindya Power Generating Company Private Ltd
- Merrill Lynch Commodities Europe
- Orica Mining Services - Indonesia
- Sical Logistics Limited - India
- Jaiprakash Power Ventures ltd
- Petron Corporation, Philippines
- Interocean Group of Companies - India
- Bhoruka Overseas - Indonesia
- South Luzon Thermal Energy Corporation
- Kalimantan Lumbung Energi - Indonesia
- Australian Commodity Traders Exchange
- Latin American Coal - Colombia
- Kepco SPC Power Corporation, Philippines
- Ministry of Mines - Canada
- SN Aboitiz Power Inc, Philippines
- Therma Luzon, Inc, Philippines
- GVK Power & Infra Limited - India
- Samtan Co., Ltd - South Korea
- Electricity Authority, New Zealand
- Coalindo Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- IHS Mccloskey Coal Group - USA
- The Treasury - Australian Government
- GN Power Mariveles Coal Plant, Philippines
- Mercuria Energy - Indonesia
- Edison Trading Spa - Italy
- Africa Commodities Group - South Africa
- Aditya Birla Group - India
- AsiaOL BioFuels Corp., Philippines
- Semirara Mining and Power Corporation, Philippines
- SMC Global Power, Philippines
- Bhatia International Limited - India
- Medco Energi Mining Internasional
- Kohat Cement Company Ltd. - Pakistan
- ASAPP Information Group - India
- Maheswari Brothers Coal Limited - India
- Cigading International Bulk Terminal - Indonesia
- Indonesian Coal Mining Association
- Siam City Cement PLC, Thailand
- Cement Manufacturers Association - India
- Bukit Asam (Persero) Tbk - Indonesia
- Renaissance Capital - South Africa
- Kartika Selabumi Mining - Indonesia
- Romanian Commodities Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Maharashtra Electricity Regulatory Commission - India
- Intertek Mineral Services - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Kumho Petrochemical, South Korea
- Essar Steel Hazira Ltd - India
- Barasentosa Lestari - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Simpson Spence & Young - Indonesia
- India Bulls Power Limited - India
- Independent Power Producers Association of India
- Bayan Resources Tbk. - Indonesia
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