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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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Monday, 08 January 24
KOSPO TO BUY 80000 MT OF INDONESIAN LOW CALORIFIC VALUE COAL FOR FEB 2024
Korea Southern Power Co., Ltd. (KOSPO), is inviting bids for the supply of Indonesian Low Calorific Value Coal from qualified suppliers for Korean ...
Monday, 08 January 24
SEABORNE TRADE REACHES 12.4BN TONNES - CLARKSONS
China will establish a back-up coal production system by 2027 to stabilise prices and secure coal supply, the state planner said on Wednesday, even ...
Monday, 08 January 24
CAPESIZES START THE NEW YEAR ON POSITIVE NOTE - BALTIC EXCHANGE
Capesize
This week the capsize market has been marked by a mix of activities and challenges. Despite a slow start following the Christmas and N ...
Friday, 05 January 24
MORGAN STANLEY SEES LOWER OIL PRICES IN 2024 ON OVERSUPPLY CONCERNS - REUTERS
Morgan Stanley sees Brent crude prices anchored near $80 per barrel in the first half in 2024 before declining towards the end of the year as it ex ...
Friday, 05 January 24
INDIA'S COAL OUTPUT RISES NEARLY 11 PC IN DEC TO 92.87 MT - PTI
India’s coal production increased by 10.75 per cent to 92.87 million tonne in December 2023 as compared to the year-ago period, an official s ...
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- Global Business Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Maheswari Brothers Coal Limited - India
- Indogreen Group - Indonesia
- Manunggal Multi Energi - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Oldendorff Carriers - Singapore
- Bhoruka Overseas - Indonesia
- Formosa Plastics Group - Taiwan
- Central Java Power - Indonesia
- The Treasury - Australian Government
- Miang Besar Coal Terminal - Indonesia
- Toyota Tsusho Corporation, Japan
- CIMB Investment Bank - Malaysia
- Borneo Indobara - Indonesia
- GVK Power & Infra Limited - India
- India Bulls Power Limited - India
- Directorate Of Revenue Intelligence - India
- Carbofer General Trading SA - India
- Ministry of Transport, Egypt
- Lanco Infratech Ltd - India
- Eastern Energy - Thailand
- PowerSource Philippines DevCo
- Singapore Mercantile Exchange
- Romanian Commodities Exchange
- Neyveli Lignite Corporation Ltd, - India
- GMR Energy Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Standard Chartered Bank - UAE
- Meenaskhi Energy Private Limited - India
- Globalindo Alam Lestari - Indonesia
- Bukit Baiduri Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Madhucon Powers Ltd - India
- Samtan Co., Ltd - South Korea
- Indonesian Coal Mining Association
- Renaissance Capital - South Africa
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kohat Cement Company Ltd. - Pakistan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- ICICI Bank Limited - India
- Petron Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Intertek Mineral Services - Indonesia
- Gujarat Sidhee Cement - India
- Aditya Birla Group - India
- Electricity Authority, New Zealand
- London Commodity Brokers - England
- Bangladesh Power Developement Board
- IHS Mccloskey Coal Group - USA
- South Luzon Thermal Energy Corporation
- Petrochimia International Co. Ltd.- Taiwan
- Planning Commission, India
- Barasentosa Lestari - Indonesia
- The State Trading Corporation of India Ltd
- Africa Commodities Group - South Africa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Semirara Mining Corp, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Australian Commodity Traders Exchange
- GN Power Mariveles Coal Plant, Philippines
- Semirara Mining and Power Corporation, Philippines
- Thai Mozambique Logistica
- Sojitz Corporation - Japan
- Kapuas Tunggal Persada - Indonesia
- Parry Sugars Refinery, India
- Trasteel International SA, Italy
- Coastal Gujarat Power Limited - India
- Iligan Light & Power Inc, Philippines
- Sakthi Sugars Limited - India
- Eastern Coal Council - USA
- Leighton Contractors Pty Ltd - Australia
- Central Electricity Authority - India
- Australian Coal Association
- Videocon Industries ltd - India
- Savvy Resources Ltd - HongKong
- Wood Mackenzie - Singapore
- Kaltim Prima Coal - Indonesia
- Meralco Power Generation, Philippines
- Mjunction Services Limited - India
- Baramulti Group, Indonesia
- Karbindo Abesyapradhi - Indoneisa
- AsiaOL BioFuels Corp., Philippines
- Medco Energi Mining Internasional
- Pendopo Energi Batubara - Indonesia
- European Bulk Services B.V. - Netherlands
- Economic Council, Georgia
- Salva Resources Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- TNB Fuel Sdn Bhd - Malaysia
- Kobexindo Tractors - Indoneisa
- Rashtriya Ispat Nigam Limited - India
- SMG Consultants - Indonesia
- The University of Queensland
- Alfred C Toepfer International GmbH - Germany
- Cement Manufacturers Association - India
- Edison Trading Spa - Italy
- Power Finance Corporation Ltd., India
- Binh Thuan Hamico - Vietnam
- Port Waratah Coal Services - Australia
- Directorate General of MIneral and Coal - Indonesia
- Bayan Resources Tbk. - Indonesia
- Uttam Galva Steels Limited - India
- Minerals Council of Australia
- Jaiprakash Power Ventures ltd
- Asmin Koalindo Tuhup - Indonesia
- White Energy Company Limited
- VISA Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- Mintek Dendrill Indonesia
- PTC India Limited - India
- Altura Mining Limited, Indonesia
- Coalindo Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- Chamber of Mines of South Africa
- Bukit Makmur.PT - Indonesia
- Global Green Power PLC Corporation, Philippines
- Makarim & Taira - Indonesia
- Chettinad Cement Corporation Ltd - India
- Xindia Steels Limited - India
- Indo Tambangraya Megah - Indonesia
- Indian Energy Exchange, India
- Tamil Nadu electricity Board
- Anglo American - United Kingdom
- Independent Power Producers Association of India
- Rio Tinto Coal - Australia
- International Coal Ventures Pvt Ltd - India
- Commonwealth Bank - Australia
- IEA Clean Coal Centre - UK
- Sinarmas Energy and Mining - Indonesia
- Marubeni Corporation - India
- Deloitte Consulting - India
- Sindya Power Generating Company Private Ltd
- Dalmia Cement Bharat India
- Essar Steel Hazira Ltd - India
- Siam City Cement - Thailand
- Gujarat Electricity Regulatory Commission - India
- Ministry of Mines - Canada
- Bukit Asam (Persero) Tbk - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Interocean Group of Companies - India
- Energy Development Corp, Philippines
- Bharathi Cement Corporation - India
- Vizag Seaport Private Limited - India
- Jindal Steel & Power Ltd - India
- Kideco Jaya Agung - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Ambuja Cements Ltd - India
- Goldman Sachs - Singapore
- Straits Asia Resources Limited - Singapore
- Heidelberg Cement - Germany
- SMC Global Power, Philippines
- Sarangani Energy Corporation, Philippines
- Agrawal Coal Company - India
- Merrill Lynch Commodities Europe
- Indian Oil Corporation Limited
- Parliament of New Zealand
- Sical Logistics Limited - India
- Simpson Spence & Young - Indonesia
- Energy Link Ltd, New Zealand
- SN Aboitiz Power Inc, Philippines
- Bhushan Steel Limited - India
- Kartika Selabumi Mining - Indonesia
- Kepco SPC Power Corporation, Philippines
- Antam Resourcindo - Indonesia
- Attock Cement Pakistan Limited
- Vedanta Resources Plc - India
- New Zealand Coal & Carbon
- MS Steel International - UAE
- Bhatia International Limited - India
- San Jose City I Power Corp, Philippines
- Georgia Ports Authority, United States
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Wilmar Investment Holdings
- Kumho Petrochemical, South Korea
- Price Waterhouse Coopers - Russia
- ASAPP Information Group - India
- TeaM Sual Corporation - Philippines
- Riau Bara Harum - Indonesia
- Mercator Lines Limited - India
- Star Paper Mills Limited - India
- Therma Luzon, Inc, Philippines
- Mercuria Energy - Indonesia
- Orica Mining Services - Indonesia
- Coal and Oil Company - UAE
- Grasim Industreis Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- McConnell Dowell - Australia
- Metalloyd Limited - United Kingdom
- Indika Energy - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Sree Jayajothi Cements Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Krishnapatnam Port Company Ltd. - India
- Billiton Holdings Pty Ltd - Australia
- Orica Australia Pty. Ltd.
- Larsen & Toubro Limited - India
- Electricity Generating Authority of Thailand
- Bulk Trading Sa - Switzerland
- Vijayanagar Sugar Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Siam City Cement PLC, Thailand
- Thiess Contractors Indonesia
- CNBM International Corporation - China
- Malabar Cements Ltd - India
- Tata Chemicals Ltd - India
- Banpu Public Company Limited - Thailand
- Latin American Coal - Colombia
- Posco Energy - South Korea
- Ind-Barath Power Infra Limited - India
- Ministry of Finance - Indonesia
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