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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, 22 November 23
INDIA: GOVERNMENT PLANS 1.4 BILLION TONNE COAL OUTPUT BY 2027 - LIVEMINT
The Union coal ministry on Monday announced plans to increase India’s coal production to 1.404 billion tonne by 2027, with an eye to further ...
Wednesday, 22 November 23
OBLIGATION. INDONESIA AIMS TO START COLLECTING LEVIES FROM COAL MINERS IN JANUARY - REUTERS
Indonesia plans to start collecting levies from coal miners in January to be used to compensate miners who sell coal to the state utility at lower ...
Tuesday, 21 November 23
INDIAN COAL POWER PLANTS’ CAPACITY UTILISATION WILL IMPROVE TO 65% THIS FISCAL: - CRISIL
Coal-based thermal power units’ plant load factor (PLF) or capacity utilisation will improve to 65 percent in the current fiscal year despite ...
Tuesday, 14 November 23
CAPITAL PRODUCT PARTNERS L.P. ANNOUNCES TRANSFORMATIVE TRANSACTION INCLUDING THE ACQUISITION OF 11 NEWBUILD LNG CARRIERS FOR $3.1 BILLION
Capital Product Partners L.P. announced that it has entered into an umbrella agreement (the “Umbrella Agreement”) with Capital Maritime ...
Tuesday, 14 November 23
COAL INDIA BEATS Q2 PROFIT VIEW ON HIGH POWER DEMAND AMID WEAK MONSOON - REUTERS
Coal India on Friday reported better-than-expected second-quarter profit, helped by high power demand and boosted production amid a weak monsoon.
...
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- India Bulls Power Limited - India
- Oldendorff Carriers - Singapore
- Ceylon Electricity Board - Sri Lanka
- Makarim & Taira - Indonesia
- Kaltim Prima Coal - Indonesia
- South Luzon Thermal Energy Corporation
- Kohat Cement Company Ltd. - Pakistan
- Ambuja Cements Ltd - India
- Kobexindo Tractors - Indoneisa
- Iligan Light & Power Inc, Philippines
- Indonesian Coal Mining Association
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Baiduri Energy - Indonesia
- Marubeni Corporation - India
- Commonwealth Bank - Australia
- Bangladesh Power Developement Board
- Kideco Jaya Agung - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Coal and Oil Company - UAE
- Bayan Resources Tbk. - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- OPG Power Generation Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Australian Coal Association
- Globalindo Alam Lestari - Indonesia
- Riau Bara Harum - Indonesia
- Standard Chartered Bank - UAE
- Eastern Energy - Thailand
- TeaM Sual Corporation - Philippines
- MS Steel International - UAE
- Indo Tambangraya Megah - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Toyota Tsusho Corporation, Japan
- Manunggal Multi Energi - Indonesia
- Kepco SPC Power Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- GVK Power & Infra Limited - India
- Siam City Cement - Thailand
- McConnell Dowell - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Cement Manufacturers Association - India
- Intertek Mineral Services - Indonesia
- Bharathi Cement Corporation - India
- Coastal Gujarat Power Limited - India
- Coalindo Energy - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Meralco Power Generation, Philippines
- Central Java Power - Indonesia
- The Treasury - Australian Government
- Savvy Resources Ltd - HongKong
- Georgia Ports Authority, United States
- GAC Shipping (India) Pvt Ltd
- Rio Tinto Coal - Australia
- Salva Resources Pvt Ltd - India
- Aditya Birla Group - India
- ICICI Bank Limited - India
- Indika Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Global Green Power PLC Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Meenaskhi Energy Private Limited - India
- Asmin Koalindo Tuhup - Indonesia
- SMG Consultants - Indonesia
- Parry Sugars Refinery, India
- Indian Oil Corporation Limited
- Simpson Spence & Young - Indonesia
- Wilmar Investment Holdings
- Semirara Mining Corp, Philippines
- Jaiprakash Power Ventures ltd
- ASAPP Information Group - India
- Sindya Power Generating Company Private Ltd
- Neyveli Lignite Corporation Ltd, - India
- Alfred C Toepfer International GmbH - Germany
- Grasim Industreis Ltd - India
- New Zealand Coal & Carbon
- Lanco Infratech Ltd - India
- Siam City Cement PLC, Thailand
- Bukit Makmur.PT - Indonesia
- Gujarat Sidhee Cement - India
- PetroVietnam Power Coal Import and Supply Company
- Mercator Lines Limited - India
- Kalimantan Lumbung Energi - Indonesia
- GMR Energy Limited - India
- Heidelberg Cement - Germany
- PowerSource Philippines DevCo
- Banpu Public Company Limited - Thailand
- Billiton Holdings Pty Ltd - Australia
- Malabar Cements Ltd - India
- IHS Mccloskey Coal Group - USA
- Renaissance Capital - South Africa
- Ind-Barath Power Infra Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Altura Mining Limited, Indonesia
- Ministry of Transport, Egypt
- Posco Energy - South Korea
- Barasentosa Lestari - Indonesia
- Thai Mozambique Logistica
- Electricity Generating Authority of Thailand
- Semirara Mining and Power Corporation, Philippines
- Ministry of Mines - Canada
- Merrill Lynch Commodities Europe
- Attock Cement Pakistan Limited
- Maharashtra Electricity Regulatory Commission - India
- Agrawal Coal Company - India
- Goldman Sachs - Singapore
- Central Electricity Authority - India
- Sree Jayajothi Cements Limited - India
- Mercuria Energy - Indonesia
- London Commodity Brokers - England
- Xindia Steels Limited - India
- Price Waterhouse Coopers - Russia
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- White Energy Company Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhushan Steel Limited - India
- Borneo Indobara - Indonesia
- Timah Investasi Mineral - Indoneisa
- Ministry of Finance - Indonesia
- Thiess Contractors Indonesia
- Orica Australia Pty. Ltd.
- AsiaOL BioFuels Corp., Philippines
- Binh Thuan Hamico - Vietnam
- Straits Asia Resources Limited - Singapore
- Vedanta Resources Plc - India
- Sarangani Energy Corporation, Philippines
- Sojitz Corporation - Japan
- Port Waratah Coal Services - Australia
- Economic Council, Georgia
- San Jose City I Power Corp, Philippines
- Holcim Trading Pte Ltd - Singapore
- Kumho Petrochemical, South Korea
- Directorate Of Revenue Intelligence - India
- Aboitiz Power Corporation - Philippines
- Eastern Coal Council - USA
- Baramulti Group, Indonesia
- Dalmia Cement Bharat India
- European Bulk Services B.V. - Netherlands
- CIMB Investment Bank - Malaysia
- Edison Trading Spa - Italy
- Jindal Steel & Power Ltd - India
- Karaikal Port Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Australian Commodity Traders Exchange
- Therma Luzon, Inc, Philippines
- Indogreen Group - Indonesia
- Bhatia International Limited - India
- Energy Development Corp, Philippines
- Trasteel International SA, Italy
- SN Aboitiz Power Inc, Philippines
- Petron Corporation, Philippines
- Tamil Nadu electricity Board
- IEA Clean Coal Centre - UK
- LBH Netherlands Bv - Netherlands
- International Coal Ventures Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Samtan Co., Ltd - South Korea
- Kartika Selabumi Mining - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Uttam Galva Steels Limited - India
- Videocon Industries ltd - India
- Sical Logistics Limited - India
- Anglo American - United Kingdom
- Mjunction Services Limited - India
- Chettinad Cement Corporation Ltd - India
- The State Trading Corporation of India Ltd
- CNBM International Corporation - China
- Star Paper Mills Limited - India
- Bulk Trading Sa - Switzerland
- Cigading International Bulk Terminal - Indonesia
- Carbofer General Trading SA - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Independent Power Producers Association of India
- The University of Queensland
- Wood Mackenzie - Singapore
- Rashtriya Ispat Nigam Limited - India
- PNOC Exploration Corporation - Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Chamber of Mines of South Africa
- Medco Energi Mining Internasional
- Latin American Coal - Colombia
- Power Finance Corporation Ltd., India
- Formosa Plastics Group - Taiwan
- Africa Commodities Group - South Africa
- Deloitte Consulting - India
- Electricity Authority, New Zealand
- Miang Besar Coal Terminal - Indonesia
- Interocean Group of Companies - India
- Planning Commission, India
- Sakthi Sugars Limited - India
- Indian Energy Exchange, India
- Bahari Cakrawala Sebuku - Indonesia
- SMC Global Power, Philippines
- Maheswari Brothers Coal Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Romanian Commodities Exchange
- Singapore Mercantile Exchange
- Essar Steel Hazira Ltd - India
- Parliament of New Zealand
- Mintek Dendrill Indonesia
- Global Business Power Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Orica Mining Services - Indonesia
- PTC India Limited - India
- Madhucon Powers Ltd - India
- Tata Chemicals Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Minerals Council of Australia
- Global Coal Blending Company Limited - Australia
- Kapuas Tunggal Persada - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Pendopo Energi Batubara - Indonesia
- Larsen & Toubro Limited - India
- VISA Power Limited - India
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