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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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Tuesday, 14 November 23
CHINA'S BELT AND ROAD INITIATIVE TURNS AWAY FROM COAL - WOOD MACKENZIE
Ambitious, contentious and big spending, China’s Belt and Road Initiative (BRI) is 10 years old. In that time, China has splashed more than U ...
Friday, 10 November 23
THE COMMODITIES FEED: OIL UNDER PRESSURE - ING
Energy – Brent plummets
The oil market came under significant pressure yesterday. ICE Brent settled 4.19% lower on the day and ...
Friday, 10 November 23
COAL USE AT U.S. POWER PLANTS CONTINUES DOWNWARD SPIRAL; FULL IMPACT ON MINES TO BE FELT IN 2024 - IEEFA
This year, the use of coal by the U.S.’s power producers has been so anemic that the fuel has not achieved a 20% market share in any month so ...
Friday, 10 November 23
INDIA: NATIONAL COAL INDEX RISES 3.83 POINTS IN SEPTEMBER AMID HIGHER DEMAND - LIVEMINT
The National Coal Index (NCI) rose 3.83 points to 143.91 in September amid growing demand for coal.
The union coal ministry on Tuesd ...
Thursday, 09 November 23
WE'RE PRODUCING TOO MUCH COAL, OIL AND GAS, REPORT SAYS - WSJ
World leaders pledged in 2015 to reduce emissions in a combined effort to limit climate change.
Now they are stepping up production ...
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- Sindya Power Generating Company Private Ltd
- Central Java Power - Indonesia
- Parry Sugars Refinery, India
- Indika Energy - Indonesia
- Makarim & Taira - Indonesia
- Metalloyd Limited - United Kingdom
- The Treasury - Australian Government
- Cement Manufacturers Association - India
- Rashtriya Ispat Nigam Limited - India
- IEA Clean Coal Centre - UK
- Marubeni Corporation - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- GAC Shipping (India) Pvt Ltd
- McConnell Dowell - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- AsiaOL BioFuels Corp., Philippines
- Bharathi Cement Corporation - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Grasim Industreis Ltd - India
- Meralco Power Generation, Philippines
- MS Steel International - UAE
- Billiton Holdings Pty Ltd - Australia
- Holcim Trading Pte Ltd - Singapore
- PTC India Limited - India
- International Coal Ventures Pvt Ltd - India
- Madhucon Powers Ltd - India
- Indian Oil Corporation Limited
- Tata Chemicals Ltd - India
- PNOC Exploration Corporation - Philippines
- Indian Energy Exchange, India
- Formosa Plastics Group - Taiwan
- Uttam Galva Steels Limited - India
- Binh Thuan Hamico - Vietnam
- ICICI Bank Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Asmin Koalindo Tuhup - Indonesia
- Edison Trading Spa - Italy
- OPG Power Generation Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Medco Energi Mining Internasional
- Xindia Steels Limited - India
- Carbofer General Trading SA - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Merrill Lynch Commodities Europe
- Antam Resourcindo - Indonesia
- TeaM Sual Corporation - Philippines
- Jaiprakash Power Ventures ltd
- Mercuria Energy - Indonesia
- Sarangani Energy Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Vedanta Resources Plc - India
- Eastern Energy - Thailand
- Neyveli Lignite Corporation Ltd, - India
- Power Finance Corporation Ltd., India
- Directorate Of Revenue Intelligence - India
- Essar Steel Hazira Ltd - India
- Agrawal Coal Company - India
- Leighton Contractors Pty Ltd - Australia
- Bhoruka Overseas - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Siam City Cement PLC, Thailand
- Attock Cement Pakistan Limited
- Maharashtra Electricity Regulatory Commission - India
- Coalindo Energy - Indonesia
- Singapore Mercantile Exchange
- CNBM International Corporation - China
- Kaltim Prima Coal - Indonesia
- Savvy Resources Ltd - HongKong
- Bukit Baiduri Energy - Indonesia
- Bhatia International Limited - India
- Semirara Mining Corp, Philippines
- Rio Tinto Coal - Australia
- Pendopo Energi Batubara - Indonesia
- IHS Mccloskey Coal Group - USA
- Salva Resources Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Chamber of Mines of South Africa
- Kalimantan Lumbung Energi - Indonesia
- Eastern Coal Council - USA
- Minerals Council of Australia
- Bhushan Steel Limited - India
- Global Coal Blending Company Limited - Australia
- Riau Bara Harum - Indonesia
- Electricity Authority, New Zealand
- Goldman Sachs - Singapore
- Bangladesh Power Developement Board
- ASAPP Information Group - India
- Ceylon Electricity Board - Sri Lanka
- Sree Jayajothi Cements Limited - India
- Chettinad Cement Corporation Ltd - India
- Karaikal Port Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Latin American Coal - Colombia
- Miang Besar Coal Terminal - Indonesia
- Romanian Commodities Exchange
- Aditya Birla Group - India
- Petrochimia International Co. Ltd.- Taiwan
- Iligan Light & Power Inc, Philippines
- Indogreen Group - Indonesia
- Global Green Power PLC Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Economic Council, Georgia
- Kapuas Tunggal Persada - Indonesia
- Jindal Steel & Power Ltd - India
- Orica Australia Pty. Ltd.
- Kohat Cement Company Ltd. - Pakistan
- Sakthi Sugars Limited - India
- Oldendorff Carriers - Singapore
- Therma Luzon, Inc, Philippines
- Commonwealth Bank - Australia
- Coal and Oil Company - UAE
- Bahari Cakrawala Sebuku - Indonesia
- Indonesian Coal Mining Association
- Bayan Resources Tbk. - Indonesia
- Globalindo Alam Lestari - Indonesia
- Kumho Petrochemical, South Korea
- Malabar Cements Ltd - India
- Electricity Generating Authority of Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sical Logistics Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Planning Commission, India
- Dalmia Cement Bharat India
- Standard Chartered Bank - UAE
- Ambuja Cements Ltd - India
- Manunggal Multi Energi - Indonesia
- Petron Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- India Bulls Power Limited - India
- London Commodity Brokers - England
- Siam City Cement - Thailand
- Barasentosa Lestari - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Kepco SPC Power Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Alfred C Toepfer International GmbH - Germany
- South Luzon Thermal Energy Corporation
- Australian Coal Association
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Bulk Trading Sa - Switzerland
- Vizag Seaport Private Limited - India
- Ministry of Mines - Canada
- PowerSource Philippines DevCo
- Port Waratah Coal Services - Australia
- SN Aboitiz Power Inc, Philippines
- Cigading International Bulk Terminal - Indonesia
- Gujarat Sidhee Cement - India
- Sinarmas Energy and Mining - Indonesia
- The State Trading Corporation of India Ltd
- San Jose City I Power Corp, Philippines
- Videocon Industries ltd - India
- Deloitte Consulting - India
- SMG Consultants - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Ministry of Transport, Egypt
- Ind-Barath Power Infra Limited - India
- New Zealand Coal & Carbon
- Wood Mackenzie - Singapore
- Thai Mozambique Logistica
- Vijayanagar Sugar Pvt Ltd - India
- Independent Power Producers Association of India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kartika Selabumi Mining - Indonesia
- VISA Power Limited - India
- Borneo Indobara - Indonesia
- Timah Investasi Mineral - Indoneisa
- Altura Mining Limited, Indonesia
- Anglo American - United Kingdom
- Thiess Contractors Indonesia
- European Bulk Services B.V. - Netherlands
- Straits Asia Resources Limited - Singapore
- Baramulti Group, Indonesia
- White Energy Company Limited
- Energy Link Ltd, New Zealand
- Banpu Public Company Limited - Thailand
- Renaissance Capital - South Africa
- Price Waterhouse Coopers - Russia
- Mintek Dendrill Indonesia
- Energy Development Corp, Philippines
- The University of Queensland
- Interocean Group of Companies - India
- Larsen & Toubro Limited - India
- Simpson Spence & Young - Indonesia
- Toyota Tsusho Corporation, Japan
- Australian Commodity Traders Exchange
- Star Paper Mills Limited - India
- Posco Energy - South Korea
- Maheswari Brothers Coal Limited - India
- Orica Mining Services - Indonesia
- Lanco Infratech Ltd - India
- Africa Commodities Group - South Africa
- Meenaskhi Energy Private Limited - India
- Wilmar Investment Holdings
- Parliament of New Zealand
- Intertek Mineral Services - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Global Business Power Corporation, Philippines
- Central Electricity Authority - India
- Trasteel International SA, Italy
- Sojitz Corporation - Japan
- Kobexindo Tractors - Indoneisa
- GVK Power & Infra Limited - India
- GMR Energy Limited - India
- Coastal Gujarat Power Limited - India
- Mjunction Services Limited - India
- SMC Global Power, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Indo Tambangraya Megah - Indonesia
- Mercator Lines Limited - India
- Tamil Nadu electricity Board
- Bukit Makmur.PT - Indonesia
- Ministry of Finance - Indonesia
- Heidelberg Cement - Germany
- Georgia Ports Authority, United States
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