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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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Thursday, 25 January 24
THE RED SEA ESCALATION IMPLICATIONS ON GLOBAL SEABORNE TRADE - MARIA BERTZELETOU
In recent days, discussions have intensified about the potential impact on the seaborne trade and ton-miles due to the evolving dynamics of market ...
Thursday, 25 January 24
RED SEA SHIPPING DISRUPTIONS KEEP GEOPOLITICAL PREMIUM FOR COMMODITIES - FITCH RATINGS
Shipping disruptions and re-routing away from the Red Sea will maintain the geopolitical premium in the main commodity markets, including for oil a ...
Friday, 19 January 24
INDONESIA TARGETS 710 MLN METRIC TONS COAL OUTPUT IN 2024 AFTER RECORD 2023 - REUTERS
Indonesia, a major thermal coal exporter, aims to produce 710 million metric tons of coal in 2024, its mining minister said on Monday, after postin ...
Friday, 19 January 24
DRUMMOND COLOMBIA COAL OUTPUT ROSE 7.1% IN 2023 - REUTERS
Coal production from miner Drummond’s Colombia operations rose 7.1% in 2023 to 29.5 million metric tons, while exports declined by 2.6% to 27 ...
Friday, 19 January 24
CHINA'S 2023 COAL OUTPUT HITS RECORD HIGH - REUTERS
China’s coal output reached a record high in 2023, data from the statistics bureau showed on Wednesday, amid an ongoing focus on energy secur ...
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- Grasim Industreis Ltd - India
- Semirara Mining Corp, Philippines
- Chamber of Mines of South Africa
- Holcim Trading Pte Ltd - Singapore
- Bangladesh Power Developement Board
- Altura Mining Limited, Indonesia
- Rashtriya Ispat Nigam Limited - India
- Heidelberg Cement - Germany
- Chettinad Cement Corporation Ltd - India
- South Luzon Thermal Energy Corporation
- Jaiprakash Power Ventures ltd
- Trasteel International SA, Italy
- Sree Jayajothi Cements Limited - India
- Mercator Lines Limited - India
- Indo Tambangraya Megah - Indonesia
- Cement Manufacturers Association - India
- Parry Sugars Refinery, India
- Krishnapatnam Port Company Ltd. - India
- PNOC Exploration Corporation - Philippines
- GVK Power & Infra Limited - India
- The University of Queensland
- GAC Shipping (India) Pvt Ltd
- Deloitte Consulting - India
- Directorate Of Revenue Intelligence - India
- Leighton Contractors Pty Ltd - Australia
- Straits Asia Resources Limited - Singapore
- Thiess Contractors Indonesia
- Intertek Mineral Services - Indonesia
- Medco Energi Mining Internasional
- SN Aboitiz Power Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Dalmia Cement Bharat India
- PowerSource Philippines DevCo
- Lanco Infratech Ltd - India
- Meenaskhi Energy Private Limited - India
- Global Coal Blending Company Limited - Australia
- Global Business Power Corporation, Philippines
- Borneo Indobara - Indonesia
- Indian Oil Corporation Limited
- Semirara Mining and Power Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- VISA Power Limited - India
- Therma Luzon, Inc, Philippines
- Petron Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Sindya Power Generating Company Private Ltd
- IHS Mccloskey Coal Group - USA
- Attock Cement Pakistan Limited
- Coalindo Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Central Java Power - Indonesia
- Ind-Barath Power Infra Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Sical Logistics Limited - India
- Kaltim Prima Coal - Indonesia
- Siam City Cement - Thailand
- Minerals Council of Australia
- Pendopo Energi Batubara - Indonesia
- Kumho Petrochemical, South Korea
- TeaM Sual Corporation - Philippines
- Essar Steel Hazira Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Pipit Mutiara Jaya. PT, Indonesia
- Kapuas Tunggal Persada - Indonesia
- Thai Mozambique Logistica
- Oldendorff Carriers - Singapore
- Xindia Steels Limited - India
- Coal and Oil Company - UAE
- Metalloyd Limited - United Kingdom
- Salva Resources Pvt Ltd - India
- Goldman Sachs - Singapore
- Banpu Public Company Limited - Thailand
- Aditya Birla Group - India
- IEA Clean Coal Centre - UK
- Jorong Barutama Greston.PT - Indonesia
- Ministry of Finance - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Kartika Selabumi Mining - Indonesia
- Kideco Jaya Agung - Indonesia
- CNBM International Corporation - China
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Africa Commodities Group - South Africa
- Ministry of Transport, Egypt
- Economic Council, Georgia
- Riau Bara Harum - Indonesia
- Bukit Makmur.PT - Indonesia
- Independent Power Producers Association of India
- Central Electricity Authority - India
- Coastal Gujarat Power Limited - India
- Indian Energy Exchange, India
- Billiton Holdings Pty Ltd - Australia
- Energy Development Corp, Philippines
- Simpson Spence & Young - Indonesia
- Baramulti Group, Indonesia
- Antam Resourcindo - Indonesia
- Bhoruka Overseas - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- SMG Consultants - Indonesia
- Larsen & Toubro Limited - India
- ICICI Bank Limited - India
- Savvy Resources Ltd - HongKong
- Asmin Koalindo Tuhup - Indonesia
- MS Steel International - UAE
- Global Green Power PLC Corporation, Philippines
- Eastern Energy - Thailand
- Binh Thuan Hamico - Vietnam
- AsiaOL BioFuels Corp., Philippines
- Power Finance Corporation Ltd., India
- Aboitiz Power Corporation - Philippines
- Eastern Coal Council - USA
- Energy Link Ltd, New Zealand
- India Bulls Power Limited - India
- Standard Chartered Bank - UAE
- Sakthi Sugars Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Electricity Regulatory Commission - India
- International Coal Ventures Pvt Ltd - India
- Australian Commodity Traders Exchange
- Price Waterhouse Coopers - Russia
- Vedanta Resources Plc - India
- McConnell Dowell - Australia
- Iligan Light & Power Inc, Philippines
- Vizag Seaport Private Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Merrill Lynch Commodities Europe
- Karaikal Port Pvt Ltd - India
- Singapore Mercantile Exchange
- PTC India Limited - India
- New Zealand Coal & Carbon
- Mjunction Services Limited - India
- Wood Mackenzie - Singapore
- European Bulk Services B.V. - Netherlands
- Timah Investasi Mineral - Indoneisa
- Latin American Coal - Colombia
- San Jose City I Power Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Gujarat Sidhee Cement - India
- Madhucon Powers Ltd - India
- Renaissance Capital - South Africa
- PetroVietnam Power Coal Import and Supply Company
- Globalindo Alam Lestari - Indonesia
- Tamil Nadu electricity Board
- Indogreen Group - Indonesia
- CIMB Investment Bank - Malaysia
- Bayan Resources Tbk. - Indonesia
- White Energy Company Limited
- Bhushan Steel Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Manunggal Multi Energi - Indonesia
- Wilmar Investment Holdings
- Kepco SPC Power Corporation, Philippines
- Interocean Group of Companies - India
- The Treasury - Australian Government
- Malabar Cements Ltd - India
- Uttam Galva Steels Limited - India
- Maheswari Brothers Coal Limited - India
- Bukit Baiduri Energy - Indonesia
- ASAPP Information Group - India
- Carbofer General Trading SA - India
- Star Paper Mills Limited - India
- Parliament of New Zealand
- Sarangani Energy Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Indika Energy - Indonesia
- Meralco Power Generation, Philippines
- Indonesian Coal Mining Association
- Planning Commission, India
- Port Waratah Coal Services - Australia
- Australian Coal Association
- Makarim & Taira - Indonesia
- Sinarmas Energy and Mining - Indonesia
- London Commodity Brokers - England
- Bulk Trading Sa - Switzerland
- Tata Chemicals Ltd - India
- Videocon Industries ltd - India
- Orica Mining Services - Indonesia
- Agrawal Coal Company - India
- Ministry of Mines - Canada
- Electricity Authority, New Zealand
- Anglo American - United Kingdom
- Toyota Tsusho Corporation, Japan
- GMR Energy Limited - India
- Formosa Plastics Group - Taiwan
- TNB Fuel Sdn Bhd - Malaysia
- Commonwealth Bank - Australia
- Kohat Cement Company Ltd. - Pakistan
- Bhatia International Limited - India
- Rio Tinto Coal - Australia
- Posco Energy - South Korea
- Romanian Commodities Exchange
- Samtan Co., Ltd - South Korea
- Mintek Dendrill Indonesia
- LBH Netherlands Bv - Netherlands
- Electricity Generating Authority of Thailand
- Maharashtra Electricity Regulatory Commission - India
- Directorate General of MIneral and Coal - Indonesia
- Barasentosa Lestari - Indonesia
- Bharathi Cement Corporation - India
- Orica Australia Pty. Ltd.
- Georgia Ports Authority, United States
- Ambuja Cements Ltd - India
- Edison Trading Spa - Italy
- SMC Global Power, Philippines
- Cigading International Bulk Terminal - Indonesia
- OPG Power Generation Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Mercuria Energy - Indonesia
- Kobexindo Tractors - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- The State Trading Corporation of India Ltd
- Siam City Cement PLC, Thailand
- Sojitz Corporation - Japan
- Jindal Steel & Power Ltd - India
- Marubeni Corporation - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
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