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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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Sunday, 10 September 23
CHINA AUGUST COAL IMPORTS OF 44.3 MLN T HIT RECORD - REUTERS
China, the world’s top coal consumer, imported 44.3 million metric tons of the fuel last month, customs data showed, the highest amount in an ...
Tuesday, 22 August 23
CHINA'S COAL PRODUCTION LOGS STEADY GROWTH IN JANUARY-JULY: XINHUA
China’s output of raw coal went up 3.6 percent year on year in the first seven months of this year, official data showed.
The ...
Sunday, 13 August 23
THE COMMODITIES FEED: LNG SUPPLY RISKS LINGER - ING
Energy – OPEC sees deficit over remainder of 2023
Oil prices came under some pressure yesterday with ICE Brent settling a litt ...
Wednesday, 09 August 23
COAL TRADE TO RETURN TO 2019 LEVELS - BALTIC EXCHANGE
The International Energy Agency’s mid-year Coal Market Update for 2023 brings both positive and concerning news for the global coal industry. ...
Sunday, 23 July 23
ANALYSIS-INDIA'S COAL MINING BET STUMBLES AS WARY BANKS WEIGH RISING RISKS - REUTERS
India’s drive to ramp up coal output to meet growing energy demand is faltering due to banks’ reluctance to finance newly auctioned min ...
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- Africa Commodities Group - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- SMC Global Power, Philippines
- Vedanta Resources Plc - India
- Vijayanagar Sugar Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Tata Chemicals Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Grasim Industreis Ltd - India
- Australian Coal Association
- Electricity Generating Authority of Thailand
- Independent Power Producers Association of India
- Kepco SPC Power Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Thiess Contractors Indonesia
- Wood Mackenzie - Singapore
- Deloitte Consulting - India
- Price Waterhouse Coopers - Russia
- Simpson Spence & Young - Indonesia
- Bharathi Cement Corporation - India
- GVK Power & Infra Limited - India
- GMR Energy Limited - India
- Central Electricity Authority - India
- San Jose City I Power Corp, Philippines
- Wilmar Investment Holdings
- South Luzon Thermal Energy Corporation
- Standard Chartered Bank - UAE
- Siam City Cement PLC, Thailand
- Renaissance Capital - South Africa
- Aditya Birla Group - India
- Manunggal Multi Energi - Indonesia
- Eastern Energy - Thailand
- Eastern Coal Council - USA
- Videocon Industries ltd - India
- Holcim Trading Pte Ltd - Singapore
- Therma Luzon, Inc, Philippines
- Sinarmas Energy and Mining - Indonesia
- Energy Development Corp, Philippines
- Central Java Power - Indonesia
- Indika Energy - Indonesia
- Xindia Steels Limited - India
- Alfred C Toepfer International GmbH - Germany
- Karbindo Abesyapradhi - Indoneisa
- White Energy Company Limited
- Sindya Power Generating Company Private Ltd
- Straits Asia Resources Limited - Singapore
- Ind-Barath Power Infra Limited - India
- Attock Cement Pakistan Limited
- Thai Mozambique Logistica
- Kideco Jaya Agung - Indonesia
- OPG Power Generation Pvt Ltd - India
- Indian Energy Exchange, India
- Goldman Sachs - Singapore
- Ministry of Mines - Canada
- Karaikal Port Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PowerSource Philippines DevCo
- Mjunction Services Limited - India
- Kartika Selabumi Mining - Indonesia
- Samtan Co., Ltd - South Korea
- Edison Trading Spa - Italy
- Ministry of Finance - Indonesia
- PTC India Limited - India
- Economic Council, Georgia
- Global Coal Blending Company Limited - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Krishnapatnam Port Company Ltd. - India
- Cigading International Bulk Terminal - Indonesia
- SMG Consultants - Indonesia
- Chettinad Cement Corporation Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Global Green Power PLC Corporation, Philippines
- CNBM International Corporation - China
- TNB Fuel Sdn Bhd - Malaysia
- Meralco Power Generation, Philippines
- Bangladesh Power Developement Board
- Semirara Mining and Power Corporation, Philippines
- Anglo American - United Kingdom
- Georgia Ports Authority, United States
- PetroVietnam Power Coal Import and Supply Company
- Riau Bara Harum - Indonesia
- Heidelberg Cement - Germany
- Jaiprakash Power Ventures ltd
- Lanco Infratech Ltd - India
- SN Aboitiz Power Inc, Philippines
- Bulk Trading Sa - Switzerland
- Kaltim Prima Coal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Parliament of New Zealand
- Singapore Mercantile Exchange
- Siam City Cement - Thailand
- Savvy Resources Ltd - HongKong
- Orica Australia Pty. Ltd.
- Globalindo Alam Lestari - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- International Coal Ventures Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- Agrawal Coal Company - India
- Vizag Seaport Private Limited - India
- India Bulls Power Limited - India
- Electricity Authority, New Zealand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sree Jayajothi Cements Limited - India
- Minerals Council of Australia
- ASAPP Information Group - India
- Tamil Nadu electricity Board
- The State Trading Corporation of India Ltd
- Parry Sugars Refinery, India
- Aboitiz Power Corporation - Philippines
- Mintek Dendrill Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Maheswari Brothers Coal Limited - India
- Marubeni Corporation - India
- IHS Mccloskey Coal Group - USA
- TeaM Sual Corporation - Philippines
- Larsen & Toubro Limited - India
- Mercator Lines Limited - India
- Metalloyd Limited - United Kingdom
- Bhatia International Limited - India
- Indogreen Group - Indonesia
- Kumho Petrochemical, South Korea
- Salva Resources Pvt Ltd - India
- Posco Energy - South Korea
- Sarangani Energy Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Semirara Mining Corp, Philippines
- Bhushan Steel Limited - India
- Pendopo Energi Batubara - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Global Business Power Corporation, Philippines
- Borneo Indobara - Indonesia
- GAC Shipping (India) Pvt Ltd
- Dalmia Cement Bharat India
- Ambuja Cements Ltd - India
- Binh Thuan Hamico - Vietnam
- Sojitz Corporation - Japan
- Australian Commodity Traders Exchange
- Barasentosa Lestari - Indonesia
- Trasteel International SA, Italy
- Ministry of Transport, Egypt
- Bhoruka Overseas - Indonesia
- Altura Mining Limited, Indonesia
- Mercuria Energy - Indonesia
- Makarim & Taira - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Billiton Holdings Pty Ltd - Australia
- Sical Logistics Limited - India
- Interocean Group of Companies - India
- Port Waratah Coal Services - Australia
- Iligan Light & Power Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- Bayan Resources Tbk. - Indonesia
- Star Paper Mills Limited - India
- ICICI Bank Limited - India
- Cement Manufacturers Association - India
- Kapuas Tunggal Persada - Indonesia
- Merrill Lynch Commodities Europe
- Power Finance Corporation Ltd., India
- Medco Energi Mining Internasional
- Meenaskhi Energy Private Limited - India
- Baramulti Group, Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Coastal Gujarat Power Limited - India
- Coalindo Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Madhucon Powers Ltd - India
- London Commodity Brokers - England
- Bukit Makmur.PT - Indonesia
- Malabar Cements Ltd - India
- The University of Queensland
- IEA Clean Coal Centre - UK
- Rio Tinto Coal - Australia
- VISA Power Limited - India
- Coal and Oil Company - UAE
- Energy Link Ltd, New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- McConnell Dowell - Australia
- Gujarat Sidhee Cement - India
- Indonesian Coal Mining Association
- Planning Commission, India
- Leighton Contractors Pty Ltd - Australia
- Asmin Koalindo Tuhup - Indonesia
- Banpu Public Company Limited - Thailand
- Toyota Tsusho Corporation, Japan
- Chamber of Mines of South Africa
- Kalimantan Lumbung Energi - Indonesia
- Romanian Commodities Exchange
- Kobexindo Tractors - Indoneisa
- Petrochimia International Co. Ltd.- Taiwan
- Orica Mining Services - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Formosa Plastics Group - Taiwan
- Neyveli Lignite Corporation Ltd, - India
- Intertek Mineral Services - Indonesia
- Commonwealth Bank - Australia
- Petron Corporation, Philippines
- Carbofer General Trading SA - India
- The Treasury - Australian Government
- New Zealand Coal & Carbon
- Indian Oil Corporation Limited
- Maharashtra Electricity Regulatory Commission - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Antam Resourcindo - Indonesia
- Directorate Of Revenue Intelligence - India
- Latin American Coal - Colombia
- Oldendorff Carriers - Singapore
- Essar Steel Hazira Ltd - India
- MS Steel International - UAE
- Jindal Steel & Power Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Uttam Galva Steels Limited - India
- Sakthi Sugars Limited - India
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