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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, 05 January 24
BANGLADESH’S 2023 COAL-FIRED POWER OUTPUT TRIPLED, EASING SHORTAGES - REUTERS
Bangladesh nearly tripled its coal-fired power output in 2023, a Reuters analysis of government data showed, helping it tide over the worst power s ...
Tuesday, 02 January 24
COAL TRADE CONTINUES TO HEAD EAST - BALTIC EXCHANGE
The global coal trade, once concentrated in the Pacific and Atlantic basins, is undergoing a significant transformation, as highlighted in the Inte ...
Tuesday, 02 January 24
COAL CARGOES: AVOIDING EXPLOSION AND SELF-HEATING - GARD
KNOWLEDGE TO ELEVATE
Despite its contribution to greenhouse gas emissions, global coal consumption climbed to an all-time high in 2022 and is ...
Tuesday, 02 January 24
SINOPEC FORECASTS CHINA’S COAL CONSUMPTION TO PEAK AROUND 2025 - REUTERS
China Petrochemical Corp, or Sinopec, expects coal consumption to peak around 2025 at 4.37 billion metric tons, the state energy group said in an o ...
Thursday, 07 December 23
CHINA TO SET UP COAL PRODUCTION RESERVE TO STABILISE PRICES - REUTERS
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 ...
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- PTC India Limited - India
- Mercator Lines Limited - India
- Timah Investasi Mineral - Indoneisa
- Coalindo Energy - Indonesia
- Minerals Council of Australia
- Medco Energi Mining Internasional
- Larsen & Toubro Limited - India
- Riau Bara Harum - Indonesia
- Orica Australia Pty. Ltd.
- Goldman Sachs - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Wood Mackenzie - Singapore
- The University of Queensland
- McConnell Dowell - Australia
- Kumho Petrochemical, South Korea
- Kideco Jaya Agung - Indonesia
- Orica Mining Services - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Coastal Gujarat Power Limited - India
- Australian Commodity Traders Exchange
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Chettinad Cement Corporation Ltd - India
- IHS Mccloskey Coal Group - USA
- Kepco SPC Power Corporation, Philippines
- Altura Mining Limited, Indonesia
- Africa Commodities Group - South Africa
- Indian Energy Exchange, India
- Simpson Spence & Young - Indonesia
- SN Aboitiz Power Inc, Philippines
- Global Business Power Corporation, Philippines
- Bharathi Cement Corporation - India
- Global Green Power PLC Corporation, Philippines
- Makarim & Taira - Indonesia
- Rio Tinto Coal - Australia
- Directorate General of MIneral and Coal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Romanian Commodities Exchange
- Planning Commission, India
- Toyota Tsusho Corporation, Japan
- Karbindo Abesyapradhi - Indoneisa
- Ministry of Mines - Canada
- LBH Netherlands Bv - Netherlands
- TNB Fuel Sdn Bhd - Malaysia
- Holcim Trading Pte Ltd - Singapore
- Latin American Coal - Colombia
- London Commodity Brokers - England
- Parry Sugars Refinery, India
- Anglo American - United Kingdom
- SMC Global Power, Philippines
- Wilmar Investment Holdings
- Madhucon Powers Ltd - India
- Mintek Dendrill Indonesia
- Bukit Makmur.PT - Indonesia
- Central Electricity Authority - India
- Georgia Ports Authority, United States
- Semirara Mining Corp, Philippines
- Tata Chemicals Ltd - India
- TeaM Sual Corporation - Philippines
- Deloitte Consulting - India
- Energy Link Ltd, New Zealand
- Thai Mozambique Logistica
- Uttam Galva Steels Limited - India
- Siam City Cement - Thailand
- Ceylon Electricity Board - Sri Lanka
- VISA Power Limited - India
- Indian Oil Corporation Limited
- Star Paper Mills Limited - India
- Renaissance Capital - South Africa
- Indo Tambangraya Megah - Indonesia
- Iligan Light & Power Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Bhoruka Overseas - Indonesia
- Sindya Power Generating Company Private Ltd
- Chamber of Mines of South Africa
- Maheswari Brothers Coal Limited - India
- Bhatia International Limited - India
- Jaiprakash Power Ventures ltd
- ICICI Bank Limited - India
- Jorong Barutama Greston.PT - Indonesia
- European Bulk Services B.V. - Netherlands
- AsiaOL BioFuels Corp., Philippines
- Pendopo Energi Batubara - Indonesia
- Standard Chartered Bank - UAE
- IEA Clean Coal Centre - UK
- Indogreen Group - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Gujarat Sidhee Cement - India
- Indonesian Coal Mining Association
- Trasteel International SA, Italy
- Aboitiz Power Corporation - Philippines
- Kartika Selabumi Mining - Indonesia
- Posco Energy - South Korea
- Eastern Energy - Thailand
- Straits Asia Resources Limited - Singapore
- Ministry of Finance - Indonesia
- Directorate Of Revenue Intelligence - India
- Xindia Steels Limited - India
- PowerSource Philippines DevCo
- Commonwealth Bank - Australia
- Kohat Cement Company Ltd. - Pakistan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- San Jose City I Power Corp, Philippines
- Marubeni Corporation - India
- Independent Power Producers Association of India
- ASAPP Information Group - India
- Oldendorff Carriers - Singapore
- OPG Power Generation Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Salva Resources Pvt Ltd - India
- Energy Development Corp, Philippines
- Central Java Power - Indonesia
- GAC Shipping (India) Pvt Ltd
- Sojitz Corporation - Japan
- Kobexindo Tractors - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- The State Trading Corporation of India Ltd
- Global Coal Blending Company Limited - Australia
- Therma Luzon, Inc, Philippines
- Jindal Steel & Power Ltd - India
- GVK Power & Infra Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Grasim Industreis Ltd - India
- Heidelberg Cement - Germany
- Aditya Birla Group - India
- Sical Logistics Limited - India
- Parliament of New Zealand
- Barasentosa Lestari - Indonesia
- South Luzon Thermal Energy Corporation
- Borneo Indobara - Indonesia
- Meenaskhi Energy Private Limited - India
- Cement Manufacturers Association - India
- International Coal Ventures Pvt Ltd - India
- Lanco Infratech Ltd - India
- MS Steel International - UAE
- Vijayanagar Sugar Pvt Ltd - India
- Carbofer General Trading SA - India
- Ambuja Cements Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Bhushan Steel Limited - India
- Kapuas Tunggal Persada - Indonesia
- Bukit Baiduri Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Essar Steel Hazira Ltd - India
- Price Waterhouse Coopers - Russia
- Banpu Public Company Limited - Thailand
- Antam Resourcindo - Indonesia
- Edison Trading Spa - Italy
- White Energy Company Limited
- Malabar Cements Ltd - India
- Sarangani Energy Corporation, Philippines
- Merrill Lynch Commodities Europe
- Mjunction Services Limited - India
- India Bulls Power Limited - India
- Binh Thuan Hamico - Vietnam
- Rashtriya Ispat Nigam Limited - India
- The Treasury - Australian Government
- Tamil Nadu electricity Board
- Metalloyd Limited - United Kingdom
- Krishnapatnam Port Company Ltd. - India
- Vedanta Resources Plc - India
- SMG Consultants - Indonesia
- Sakthi Sugars Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Formosa Plastics Group - Taiwan
- Semirara Mining and Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Agrawal Coal Company - India
- Eastern Coal Council - USA
- Ind-Barath Power Infra Limited - India
- Attock Cement Pakistan Limited
- Bukit Asam (Persero) Tbk - Indonesia
- Interocean Group of Companies - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Gujarat Mineral Development Corp Ltd - India
- Vizag Seaport Private Limited - India
- Karaikal Port Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Kaltim Prima Coal - Indonesia
- Billiton Holdings Pty Ltd - Australia
- PNOC Exploration Corporation - Philippines
- Port Waratah Coal Services - Australia
- Electricity Generating Authority of Thailand
- CNBM International Corporation - China
- GMR Energy Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Manunggal Multi Energi - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Australian Coal Association
- Petrochimia International Co. Ltd.- Taiwan
- Gujarat Electricity Regulatory Commission - India
- Bangladesh Power Developement Board
- Coal and Oil Company - UAE
- Electricity Authority, New Zealand
- Singapore Mercantile Exchange
- Videocon Industries ltd - India
- Siam City Cement PLC, Thailand
- Indika Energy - Indonesia
- Bayan Resources Tbk. - Indonesia
- Globalindo Alam Lestari - Indonesia
- CIMB Investment Bank - Malaysia
- Thiess Contractors Indonesia
- Bulk Trading Sa - Switzerland
- Mercuria Energy - Indonesia
- Power Finance Corporation Ltd., India
- Meralco Power Generation, Philippines
- Ministry of Transport, Egypt
- Petron Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Dalmia Cement Bharat India
- Intertek Mineral Services - Indonesia
- Savvy Resources Ltd - HongKong
- Economic Council, Georgia
- New Zealand Coal & Carbon
- Bahari Cakrawala Sebuku - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Baramulti Group, Indonesia
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