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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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Monday, 17 July 23
APPROVED AMMONIA-FUELED CONTAINERSHIP - BENEFITS AND RISKS: REED SMITH
Following the news in Offshore Energy that Korea Maritime Consultants has secured approval in principle from the American Bureau of Shipping for it ...
Friday, 14 July 23
CLEAN COAL USE KEY TO DEEP CUTS IN EMISSIONS, STABLE ELECTRICITY SUPPLY - CHINA DAILY
China must push for the clean use of coal and step up integration of the dirty fuel with carbon capture, utilization and storage to achieve sustain ...
Thursday, 13 July 23
VIETNAM'S COAL EMISSIONS PRIMED FOR SURGE AFTER IMPORTS JUMP - REUTERS
Vietnam’s thermal power emissions are primed for a steep climb this summer after the country’s imports of thermal coal soared to their ...
Monday, 26 June 23
COAL PRODUCTION AND CONSUMPTION UP IN 2022 - EUROSTAT
In 2022, EU coal production and consumption continued to increase, reaching 349 million tonnes (+5% compared with the previous year) and 454 millio ...
Wednesday, 21 June 23
QATAR STRIKES SECOND BIG LNG SUPPLY DEAL WITH CHINA - REUTERS
Qatar on Tuesday secured its second large gas supply deal with a Chinese state-controlled company in less than a year, putting Asia clearly ahead i ...
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- Meralco Power Generation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Parliament of New Zealand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Electricity Regulatory Commission - India
- Coal and Oil Company - UAE
- Rio Tinto Coal - Australia
- Malabar Cements Ltd - India
- Sindya Power Generating Company Private Ltd
- Global Green Power PLC Corporation, Philippines
- New Zealand Coal & Carbon
- Semirara Mining and Power Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- Sakthi Sugars Limited - India
- Central Electricity Authority - India
- Petron Corporation, Philippines
- Cement Manufacturers Association - India
- Interocean Group of Companies - India
- Planning Commission, India
- Miang Besar Coal Terminal - Indonesia
- Mercator Lines Limited - India
- Samtan Co., Ltd - South Korea
- Lanco Infratech Ltd - India
- Romanian Commodities Exchange
- TNB Fuel Sdn Bhd - Malaysia
- Electricity Generating Authority of Thailand
- Ind-Barath Power Infra Limited - India
- Georgia Ports Authority, United States
- Bukit Makmur.PT - Indonesia
- The Treasury - Australian Government
- Kobexindo Tractors - Indoneisa
- Heidelberg Cement - Germany
- Antam Resourcindo - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Jorong Barutama Greston.PT - Indonesia
- European Bulk Services B.V. - Netherlands
- Orica Mining Services - Indonesia
- Savvy Resources Ltd - HongKong
- Posco Energy - South Korea
- Star Paper Mills Limited - India
- Carbofer General Trading SA - India
- The State Trading Corporation of India Ltd
- SMC Global Power, Philippines
- CNBM International Corporation - China
- Kepco SPC Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Videocon Industries ltd - India
- Electricity Authority, New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- Goldman Sachs - Singapore
- South Luzon Thermal Energy Corporation
- Borneo Indobara - Indonesia
- Bhushan Steel Limited - India
- Billiton Holdings Pty Ltd - Australia
- Larsen & Toubro Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Iligan Light & Power Inc, Philippines
- Vizag Seaport Private Limited - India
- Indika Energy - Indonesia
- Jaiprakash Power Ventures ltd
- Cigading International Bulk Terminal - Indonesia
- Medco Energi Mining Internasional
- Krishnapatnam Port Company Ltd. - India
- Mintek Dendrill Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Formosa Plastics Group - Taiwan
- Xindia Steels Limited - India
- Aboitiz Power Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- Jindal Steel & Power Ltd - India
- San Jose City I Power Corp, Philippines
- Ministry of Mines - Canada
- PTC India Limited - India
- PowerSource Philippines DevCo
- Dalmia Cement Bharat India
- Eastern Coal Council - USA
- Maharashtra Electricity Regulatory Commission - India
- Thai Mozambique Logistica
- Banpu Public Company Limited - Thailand
- Mjunction Services Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Mineral Development Corp Ltd - India
- Globalindo Alam Lestari - Indonesia
- Gujarat Sidhee Cement - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vedanta Resources Plc - India
- Kideco Jaya Agung - Indonesia
- Coalindo Energy - Indonesia
- Kumho Petrochemical, South Korea
- Kapuas Tunggal Persada - Indonesia
- Economic Council, Georgia
- Standard Chartered Bank - UAE
- Anglo American - United Kingdom
- Baramulti Group, Indonesia
- GMR Energy Limited - India
- Directorate Of Revenue Intelligence - India
- Siam City Cement - Thailand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Chamber of Mines of South Africa
- OPG Power Generation Pvt Ltd - India
- Agrawal Coal Company - India
- Sree Jayajothi Cements Limited - India
- Merrill Lynch Commodities Europe
- ASAPP Information Group - India
- Bukit Baiduri Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Indo Tambangraya Megah - Indonesia
- Bharathi Cement Corporation - India
- Renaissance Capital - South Africa
- Salva Resources Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Timah Investasi Mineral - Indoneisa
- Tata Chemicals Ltd - India
- Power Finance Corporation Ltd., India
- Eastern Energy - Thailand
- Meenaskhi Energy Private Limited - India
- GVK Power & Infra Limited - India
- Oldendorff Carriers - Singapore
- Madhucon Powers Ltd - India
- The University of Queensland
- Australian Coal Association
- Bangladesh Power Developement Board
- Simpson Spence & Young - Indonesia
- IHS Mccloskey Coal Group - USA
- Minerals Council of Australia
- Sinarmas Energy and Mining - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Ministry of Finance - Indonesia
- Sojitz Corporation - Japan
- Australian Commodity Traders Exchange
- Marubeni Corporation - India
- Siam City Cement PLC, Thailand
- MS Steel International - UAE
- Latin American Coal - Colombia
- Global Coal Blending Company Limited - Australia
- Ministry of Transport, Egypt
- GN Power Mariveles Coal Plant, Philippines
- White Energy Company Limited
- Kartika Selabumi Mining - Indonesia
- Singapore Mercantile Exchange
- Independent Power Producers Association of India
- Manunggal Multi Energi - Indonesia
- Energy Development Corp, Philippines
- Port Waratah Coal Services - Australia
- Karaikal Port Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- McConnell Dowell - Australia
- Indian Oil Corporation Limited
- Edison Trading Spa - Italy
- Offshore Bulk Terminal Pte Ltd, Singapore
- Orica Australia Pty. Ltd.
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Semirara Mining Corp, Philippines
- Parry Sugars Refinery, India
- Bulk Trading Sa - Switzerland
- Ceylon Electricity Board - Sri Lanka
- Intertek Mineral Services - Indonesia
- Pendopo Energi Batubara - Indonesia
- Mercuria Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- ICICI Bank Limited - India
- Straits Asia Resources Limited - Singapore
- Metalloyd Limited - United Kingdom
- Commonwealth Bank - Australia
- Energy Link Ltd, New Zealand
- International Coal Ventures Pvt Ltd - India
- Deloitte Consulting - India
- Ambuja Cements Ltd - India
- Makarim & Taira - Indonesia
- Grasim Industreis Ltd - India
- Tamil Nadu electricity Board
- Vijayanagar Sugar Pvt Ltd - India
- Thiess Contractors Indonesia
- CIMB Investment Bank - Malaysia
- Alfred C Toepfer International GmbH - Germany
- Essar Steel Hazira Ltd - India
- LBH Netherlands Bv - Netherlands
- Wood Mackenzie - Singapore
- SMG Consultants - Indonesia
- Africa Commodities Group - South Africa
- Rashtriya Ispat Nigam Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Global Business Power Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Trasteel International SA, Italy
- SN Aboitiz Power Inc, Philippines
- Uttam Galva Steels Limited - India
- Price Waterhouse Coopers - Russia
- IEA Clean Coal Centre - UK
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bhatia International Limited - India
- Riau Bara Harum - Indonesia
- Attock Cement Pakistan Limited
- Neyveli Lignite Corporation Ltd, - India
- Indian Energy Exchange, India
- Aditya Birla Group - India
- Altura Mining Limited, Indonesia
- Indogreen Group - Indonesia
- Coastal Gujarat Power Limited - India
- AsiaOL BioFuels Corp., Philippines
- Central Java Power - Indonesia
- Bayan Resources Tbk. - Indonesia
- London Commodity Brokers - England
- Sical Logistics Limited - India
- India Bulls Power Limited - India
- VISA Power Limited - India
- Indonesian Coal Mining Association
- Sarangani Energy Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Maheswari Brothers Coal Limited - India
- GAC Shipping (India) Pvt Ltd
- Barasentosa Lestari - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Wilmar Investment Holdings
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