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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, 31 January 24
CHINA'S INNER MONGOLIA COAL OUTPUT HIT 1.21B TONS IN 2023 - XINHUA
North China’s Inner Mongolia autonomous region churned out 1.21 billion tons of coal in 2023 as it strives to guarantee the country’s e ...
Wednesday, 31 January 24
GAS EXPORTS COST U.S. CONSUMERS MORE THAN $100 BILLION OVER 16-MONTH PERIOD - IEEFA
Limited Demand Growth Could Dampen the Dry Bulk Market in the Coming Months BIMCOStarting in late 2021—before its invasion of Ukraine—R ...
Tuesday, 30 January 24
LIMITED DEMAND GROWTH COULD DAMPEN THE DRY BULK MARKET IN THE COMING MONTHS - BIMCO
Demand
In our base scenario, we expect cargo demand to grow by 0-1% in 2024 and 0.5-1.5% in 2025. This is a 0.5 percentage point reduction for ...
Friday, 26 January 24
RED SEA DIVERSIONS ADD NEARLY A MILLION DOLLARS PER VOYAGE TO SHIPPING COSTS WHILE DOUBLING TRANSIT TIME - LSEG
The incremental costs of diverting a tanker from Asia to NW Europe via the Cape of Good Hope is accounting for an extra $932,905 USD per voyage whi ...
Friday, 26 January 24
HARD COAL GUARDIAN ANGEL OF THE ENERGY SUPPLY - GERMANY COAL IMPORTERS ASSOCIATION
- No security of supply without hard coal
- The Substitute Power Plant Provision Act (EKBG) must be extended
- Higher grid fees due to the ...
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- Central Electricity Authority - India
- Globalindo Alam Lestari - Indonesia
- Global Coal Blending Company Limited - Australia
- Australian Commodity Traders Exchange
- Australian Coal Association
- VISA Power Limited - India
- GAC Shipping (India) Pvt Ltd
- Standard Chartered Bank - UAE
- Salva Resources Pvt Ltd - India
- Tamil Nadu electricity Board
- Coalindo Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Xindia Steels Limited - India
- CIMB Investment Bank - Malaysia
- Jaiprakash Power Ventures ltd
- Kaltim Prima Coal - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Independent Power Producers Association of India
- New Zealand Coal & Carbon
- MS Steel International - UAE
- Agrawal Coal Company - India
- Bhatia International Limited - India
- Coal and Oil Company - UAE
- Pendopo Energi Batubara - Indonesia
- Meralco Power Generation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Sakthi Sugars Limited - India
- AsiaOL BioFuels Corp., Philippines
- Global Green Power PLC Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- SMC Global Power, Philippines
- McConnell Dowell - Australia
- Parry Sugars Refinery, India
- Gujarat Sidhee Cement - India
- Cement Manufacturers Association - India
- Grasim Industreis Ltd - India
- Interocean Group of Companies - India
- Ministry of Mines - Canada
- Kartika Selabumi Mining - Indonesia
- Economic Council, Georgia
- Price Waterhouse Coopers - Russia
- Heidelberg Cement - Germany
- Sical Logistics Limited - India
- Orica Australia Pty. Ltd.
- Savvy Resources Ltd - HongKong
- Formosa Plastics Group - Taiwan
- Bharathi Cement Corporation - India
- Jindal Steel & Power Ltd - India
- Kepco SPC Power Corporation, Philippines
- Riau Bara Harum - Indonesia
- Bukit Baiduri Energy - Indonesia
- SMG Consultants - Indonesia
- Coastal Gujarat Power Limited - India
- Directorate Of Revenue Intelligence - India
- Global Business Power Corporation, Philippines
- CNBM International Corporation - China
- Bangladesh Power Developement Board
- Anglo American - United Kingdom
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Star Paper Mills Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Deloitte Consulting - India
- Kapuas Tunggal Persada - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Petron Corporation, Philippines
- Vedanta Resources Plc - India
- Port Waratah Coal Services - Australia
- Kalimantan Lumbung Energi - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Billiton Holdings Pty Ltd - Australia
- ASAPP Information Group - India
- Wilmar Investment Holdings
- Straits Asia Resources Limited - Singapore
- Larsen & Toubro Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Latin American Coal - Colombia
- GMR Energy Limited - India
- Indogreen Group - Indonesia
- Kumho Petrochemical, South Korea
- Neyveli Lignite Corporation Ltd, - India
- Karaikal Port Pvt Ltd - India
- Videocon Industries ltd - India
- Posco Energy - South Korea
- Mercator Lines Limited - India
- Maheswari Brothers Coal Limited - India
- Siam City Cement - Thailand
- Merrill Lynch Commodities Europe
- PowerSource Philippines DevCo
- Bulk Trading Sa - Switzerland
- Uttam Galva Steels Limited - India
- Carbofer General Trading SA - India
- Tata Chemicals Ltd - India
- Marubeni Corporation - India
- Directorate General of MIneral and Coal - Indonesia
- Parliament of New Zealand
- Thiess Contractors Indonesia
- Baramulti Group, Indonesia
- Renaissance Capital - South Africa
- The State Trading Corporation of India Ltd
- Romanian Commodities Exchange
- Georgia Ports Authority, United States
- Bukit Makmur.PT - Indonesia
- Sree Jayajothi Cements Limited - India
- Indian Oil Corporation Limited
- Oldendorff Carriers - Singapore
- Electricity Generating Authority of Thailand
- Therma Luzon, Inc, Philippines
- Trasteel International SA, Italy
- Commonwealth Bank - Australia
- Dalmia Cement Bharat India
- PNOC Exploration Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
- Malabar Cements Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Mintek Dendrill Indonesia
- Singapore Mercantile Exchange
- The Treasury - Australian Government
- Rashtriya Ispat Nigam Limited - India
- Eastern Coal Council - USA
- Gujarat Electricity Regulatory Commission - India
- Pipit Mutiara Jaya. PT, Indonesia
- Indian Energy Exchange, India
- Alfred C Toepfer International GmbH - Germany
- Ceylon Electricity Board - Sri Lanka
- Altura Mining Limited, Indonesia
- Wood Mackenzie - Singapore
- Binh Thuan Hamico - Vietnam
- Thai Mozambique Logistica
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indonesian Coal Mining Association
- Toyota Tsusho Corporation, Japan
- Kobexindo Tractors - Indoneisa
- GVK Power & Infra Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Finance - Indonesia
- Bayan Resources Tbk. - Indonesia
- TeaM Sual Corporation - Philippines
- Planning Commission, India
- Bhushan Steel Limited - India
- Banpu Public Company Limited - Thailand
- Ambuja Cements Ltd - India
- Indika Energy - Indonesia
- Antam Resourcindo - Indonesia
- San Jose City I Power Corp, Philippines
- Holcim Trading Pte Ltd - Singapore
- Central Java Power - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Barasentosa Lestari - Indonesia
- Borneo Indobara - Indonesia
- Eastern Energy - Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sarangani Energy Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Mercuria Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Makarim & Taira - Indonesia
- Samtan Co., Ltd - South Korea
- South Luzon Thermal Energy Corporation
- Simpson Spence & Young - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Mjunction Services Limited - India
- Rio Tinto Coal - Australia
- Bhoruka Overseas - Indonesia
- Medco Energi Mining Internasional
- Chamber of Mines of South Africa
- The University of Queensland
- India Bulls Power Limited - India
- European Bulk Services B.V. - Netherlands
- Ministry of Transport, Egypt
- White Energy Company Limited
- Power Finance Corporation Ltd., India
- Goldman Sachs - Singapore
- Attock Cement Pakistan Limited
- Orica Mining Services - Indonesia
- Iligan Light & Power Inc, Philippines
- Semirara Mining Corp, Philippines
- IHS Mccloskey Coal Group - USA
- Sindya Power Generating Company Private Ltd
- GN Power Mariveles Coal Plant, Philippines
- Aditya Birla Group - India
- Intertek Mineral Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Energy Link Ltd, New Zealand
- Aboitiz Power Corporation - Philippines
- Siam City Cement PLC, Thailand
- Kideco Jaya Agung - Indonesia
- Electricity Authority, New Zealand
- Meenaskhi Energy Private Limited - India
- Sinarmas Energy and Mining - Indonesia
- IEA Clean Coal Centre - UK
- Chettinad Cement Corporation Ltd - India
- Timah Investasi Mineral - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- ICICI Bank Limited - India
- Metalloyd Limited - United Kingdom
- Vizag Seaport Private Limited - India
- PTC India Limited - India
- Africa Commodities Group - South Africa
- Indo Tambangraya Megah - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Edison Trading Spa - Italy
- Sojitz Corporation - Japan
- London Commodity Brokers - England
- Minerals Council of Australia
- Energy Development Corp, Philippines
- Madhucon Powers Ltd - India
- Lanco Infratech Ltd - India
- LBH Netherlands Bv - Netherlands
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