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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, 09 November 23
GREEK AND CHINESE COMPANIES OWN 34% OF THE GLOBAL FLEET’S CARGO CAPACITY - BIMCO
“The global fleet of cargo carrying ships consists of around 61,000 ships with a deadweight capacity of about 2,200 million tonnes. The ships ...
Monday, 23 October 23
CHINA SEPT COAL OUTPUT HITS SIX-MONTH HIGH ON RISING POWER DEMAND - REUTERS
China’s September coal output rose 0.4% from August to the highest level since March, official data showed on Wednesday, on rising power dema ...
Monday, 23 October 23
INDIA COAL INVENTORIES DROP AT FASTEST PACE IN TWO YEARS, BOOSTING IMPORTS - REUTERS
Coal inventories at Indian power plants in the first half of October fell at their fastest rate in two years, an analysis of government data showed ...
Tuesday, 19 September 23
LNG SHIPPING STOCKS: THE ASIAN GROWTH UP-INDICES
Last week, the UP World LNG Shipping Index (UPI) gained 3.81 points or 2.51%, closing at 155.85 points. This index tracks the performance of LNG sh ...
Sunday, 10 September 23
GOLDMAN SACHS PREDICTS OIL PRICE TO HIT $100 ON OPEC CUTS - YAHOO FINANCE
Oil supply cuts by Saudi Arabia and Russia could lead to Brent crude jumping as high as $107 a barrel in 2024, Goldman Sachs Commodities Research h ...
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- Ind-Barath Power Infra Limited - India
- Kartika Selabumi Mining - Indonesia
- Xindia Steels Limited - India
- Sical Logistics Limited - India
- Bulk Trading Sa - Switzerland
- Coastal Gujarat Power Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Neyveli Lignite Corporation Ltd, - India
- Karaikal Port Pvt Ltd - India
- Indian Energy Exchange, India
- Georgia Ports Authority, United States
- Ministry of Transport, Egypt
- Siam City Cement - Thailand
- Thiess Contractors Indonesia
- The University of Queensland
- PowerSource Philippines DevCo
- Siam City Cement PLC, Thailand
- Rio Tinto Coal - Australia
- Global Business Power Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Chamber of Mines of South Africa
- Globalindo Alam Lestari - Indonesia
- Banpu Public Company Limited - Thailand
- Agrawal Coal Company - India
- Goldman Sachs - Singapore
- Toyota Tsusho Corporation, Japan
- Merrill Lynch Commodities Europe
- San Jose City I Power Corp, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Barasentosa Lestari - Indonesia
- IHS Mccloskey Coal Group - USA
- McConnell Dowell - Australia
- Coalindo Energy - Indonesia
- Vizag Seaport Private Limited - India
- Renaissance Capital - South Africa
- Singapore Mercantile Exchange
- Samtan Co., Ltd - South Korea
- Tata Chemicals Ltd - India
- Eastern Coal Council - USA
- Directorate Of Revenue Intelligence - India
- Aboitiz Power Corporation - Philippines
- European Bulk Services B.V. - Netherlands
- The Treasury - Australian Government
- Posco Energy - South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Mercator Lines Limited - India
- Rashtriya Ispat Nigam Limited - India
- Minerals Council of Australia
- Malabar Cements Ltd - India
- Mintek Dendrill Indonesia
- Energy Link Ltd, New Zealand
- Port Waratah Coal Services - Australia
- Jorong Barutama Greston.PT - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Global Green Power PLC Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Australian Coal Association
- Commonwealth Bank - Australia
- Orica Mining Services - Indonesia
- Planning Commission, India
- Kideco Jaya Agung - Indonesia
- Star Paper Mills Limited - India
- Indika Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Pendopo Energi Batubara - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- TeaM Sual Corporation - Philippines
- Dalmia Cement Bharat India
- Gujarat Mineral Development Corp Ltd - India
- Power Finance Corporation Ltd., India
- Sree Jayajothi Cements Limited - India
- Mercuria Energy - Indonesia
- Oldendorff Carriers - Singapore
- International Coal Ventures Pvt Ltd - India
- Deloitte Consulting - India
- Borneo Indobara - Indonesia
- Romanian Commodities Exchange
- Baramulti Group, Indonesia
- IEA Clean Coal Centre - UK
- Electricity Generating Authority of Thailand
- Economic Council, Georgia
- Gujarat Sidhee Cement - India
- Holcim Trading Pte Ltd - Singapore
- Aditya Birla Group - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bayan Resources Tbk. - Indonesia
- Thai Mozambique Logistica
- Parliament of New Zealand
- MS Steel International - UAE
- CIMB Investment Bank - Malaysia
- Meenaskhi Energy Private Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Directorate General of MIneral and Coal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- CNBM International Corporation - China
- Salva Resources Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Savvy Resources Ltd - HongKong
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- London Commodity Brokers - England
- Bukit Baiduri Energy - Indonesia
- ICICI Bank Limited - India
- Therma Luzon, Inc, Philippines
- Eastern Energy - Thailand
- Jaiprakash Power Ventures ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Lanco Infratech Ltd - India
- Mjunction Services Limited - India
- SMG Consultants - Indonesia
- Ministry of Mines - Canada
- Bhatia International Limited - India
- Indonesian Coal Mining Association
- Miang Besar Coal Terminal - Indonesia
- Kaltim Prima Coal - Indonesia
- SMC Global Power, Philippines
- New Zealand Coal & Carbon
- Standard Chartered Bank - UAE
- India Bulls Power Limited - India
- South Luzon Thermal Energy Corporation
- Kepco SPC Power Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Medco Energi Mining Internasional
- White Energy Company Limited
- Ambuja Cements Ltd - India
- Independent Power Producers Association of India
- Manunggal Multi Energi - Indonesia
- Orica Australia Pty. Ltd.
- AsiaOL BioFuels Corp., Philippines
- Trasteel International SA, Italy
- Krishnapatnam Port Company Ltd. - India
- Semirara Mining Corp, Philippines
- Indian Oil Corporation Limited
- Sindya Power Generating Company Private Ltd
- Sarangani Energy Corporation, Philippines
- Makarim & Taira - Indonesia
- Bharathi Cement Corporation - India
- PTC India Limited - India
- Videocon Industries ltd - India
- Semirara Mining and Power Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Africa Commodities Group - South Africa
- Alfred C Toepfer International GmbH - Germany
- Asmin Koalindo Tuhup - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Latin American Coal - Colombia
- Cement Manufacturers Association - India
- Intertek Mineral Services - Indonesia
- Electricity Authority, New Zealand
- Bhoruka Overseas - Indonesia
- Carbofer General Trading SA - India
- OPG Power Generation Pvt Ltd - India
- Grasim Industreis Ltd - India
- Kobexindo Tractors - Indoneisa
- Australian Commodity Traders Exchange
- Gujarat Electricity Regulatory Commission - India
- Attock Cement Pakistan Limited
- Central Electricity Authority - India
- Leighton Contractors Pty Ltd - Australia
- Altura Mining Limited, Indonesia
- Cigading International Bulk Terminal - Indonesia
- PNOC Exploration Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- The State Trading Corporation of India Ltd
- Uttam Galva Steels Limited - India
- Heidelberg Cement - Germany
- Vedanta Resources Plc - India
- Interocean Group of Companies - India
- Wilmar Investment Holdings
- Sojitz Corporation - Japan
- VISA Power Limited - India
- Global Coal Blending Company Limited - Australia
- Chettinad Cement Corporation Ltd - India
- Sakthi Sugars Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Sinarmas Energy and Mining - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bukit Makmur.PT - Indonesia
- Ministry of Finance - Indonesia
- Price Waterhouse Coopers - Russia
- Antam Resourcindo - Indonesia
- ASAPP Information Group - India
- GVK Power & Infra Limited - India
- Straits Asia Resources Limited - Singapore
- GAC Shipping (India) Pvt Ltd
- Iligan Light & Power Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- Anglo American - United Kingdom
- Bangladesh Power Developement Board
- Binh Thuan Hamico - Vietnam
- Meralco Power Generation, Philippines
- Riau Bara Harum - Indonesia
- Simpson Spence & Young - Indonesia
- Edison Trading Spa - Italy
- Billiton Holdings Pty Ltd - Australia
- Essar Steel Hazira Ltd - India
- Larsen & Toubro Limited - India
- SN Aboitiz Power Inc, Philippines
- Central Java Power - Indonesia
- Jindal Steel & Power Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Indogreen Group - Indonesia
- Madhucon Powers Ltd - India
- Petron Corporation, Philippines
- Kumho Petrochemical, South Korea
- Bhushan Steel Limited - India
- Marubeni Corporation - India
- Wood Mackenzie - Singapore
- Maheswari Brothers Coal Limited - India
- Energy Development Corp, Philippines
- Parry Sugars Refinery, India
- Tamil Nadu electricity Board
- Petrochimia International Co. Ltd.- Taiwan
- GMR Energy Limited - India
- Coal and Oil Company - UAE
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