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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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Friday, 02 August 24
COAL MARKET DEVELOPMENTS: FALLING PRICES AMID RECORD-HIGH OUTPUT - WORLD BANK
Coal prices inched up in May (m/m) following an 8 percent decline in 2024Q1. The Australian and South African benchmarks have plummeted more ...
Friday, 26 July 24
FUELEU MARITME IS COMING. IS YOUR CHARTERPARTY READY? - GARD
With less than six months to implementation of FuelEU Maritime in EU and EEA trades, there has been little published advice regarding how to alloca ...
Thursday, 04 July 24
INDIA'S COAL PRODUCTION RISES 14% IN JUNE - PTI
The country’s coal production rose by 14.49% to 84.63 million tonne (MT) in June. The country’s coal output was 73.92 MT in June last f ...
Tuesday, 02 July 24
NTPC CAPTIVE COAL OUTPUT GROWS 15% IN Q1; DESPATCH RISES 17%
State-owned NTPC on Monday reported a 15 per cent year-on-year increase in the production of coal from captives mines to 9.862 metric million tonne ...
Friday, 28 June 24
KOSPO INVITED BIDS FOR 400,000 MT OF MINIMUM 4000 NCV COAL FOR FIVE YEARS
Korea Southern Power Co., Ltd. (KOSPO), is inviting bids for total 400,000 MT of Low Calorific Value Coal for 5 years starting from July 2024 until ...
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- New Zealand Coal & Carbon
- Merrill Lynch Commodities Europe
- European Bulk Services B.V. - Netherlands
- TNB Fuel Sdn Bhd - Malaysia
- Tata Chemicals Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Ceylon Electricity Board - Sri Lanka
- Iligan Light & Power Inc, Philippines
- Wood Mackenzie - Singapore
- Therma Luzon, Inc, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Economic Council, Georgia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Alfred C Toepfer International GmbH - Germany
- International Coal Ventures Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Jorong Barutama Greston.PT - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- VISA Power Limited - India
- PNOC Exploration Corporation - Philippines
- Dalmia Cement Bharat India
- Interocean Group of Companies - India
- MS Steel International - UAE
- Bukit Baiduri Energy - Indonesia
- Uttam Galva Steels Limited - India
- Energy Development Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- Bukit Makmur.PT - Indonesia
- SN Aboitiz Power Inc, Philippines
- Meralco Power Generation, Philippines
- Toyota Tsusho Corporation, Japan
- Thiess Contractors Indonesia
- Sree Jayajothi Cements Limited - India
- Straits Asia Resources Limited - Singapore
- Bayan Resources Tbk. - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Sojitz Corporation - Japan
- Power Finance Corporation Ltd., India
- Tamil Nadu electricity Board
- Karbindo Abesyapradhi - Indoneisa
- Maheswari Brothers Coal Limited - India
- Mjunction Services Limited - India
- Bhushan Steel Limited - India
- Cigading International Bulk Terminal - Indonesia
- Australian Coal Association
- Semirara Mining and Power Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- SMC Global Power, Philippines
- ICICI Bank Limited - India
- Indonesian Coal Mining Association
- Coalindo Energy - Indonesia
- PTC India Limited - India
- Makarim & Taira - Indonesia
- Indogreen Group - Indonesia
- Posco Energy - South Korea
- Singapore Mercantile Exchange
- Siam City Cement - Thailand
- Indian Energy Exchange, India
- Coastal Gujarat Power Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Global Green Power PLC Corporation, Philippines
- India Bulls Power Limited - India
- Ministry of Finance - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Pipit Mutiara Jaya. PT, Indonesia
- Chamber of Mines of South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Barasentosa Lestari - Indonesia
- Mercator Lines Limited - India
- Orica Mining Services - Indonesia
- Electricity Authority, New Zealand
- Leighton Contractors Pty Ltd - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Carbofer General Trading SA - India
- Formosa Plastics Group - Taiwan
- Bharathi Cement Corporation - India
- Directorate Of Revenue Intelligence - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Maharashtra Electricity Regulatory Commission - India
- Salva Resources Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- GMR Energy Limited - India
- Samtan Co., Ltd - South Korea
- Baramulti Group, Indonesia
- Madhucon Powers Ltd - India
- Eastern Energy - Thailand
- Renaissance Capital - South Africa
- The State Trading Corporation of India Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Georgia Ports Authority, United States
- SMG Consultants - Indonesia
- Parry Sugars Refinery, India
- Ind-Barath Power Infra Limited - India
- Sarangani Energy Corporation, Philippines
- Thai Mozambique Logistica
- Latin American Coal - Colombia
- Chettinad Cement Corporation Ltd - India
- Larsen & Toubro Limited - India
- Marubeni Corporation - India
- PowerSource Philippines DevCo
- Electricity Generating Authority of Thailand
- Port Waratah Coal Services - Australia
- Bhoruka Overseas - Indonesia
- Gujarat Electricity Regulatory Commission - India
- AsiaOL BioFuels Corp., Philippines
- Kartika Selabumi Mining - Indonesia
- Wilmar Investment Holdings
- Attock Cement Pakistan Limited
- Agrawal Coal Company - India
- Indian Oil Corporation Limited
- Bahari Cakrawala Sebuku - Indonesia
- Mintek Dendrill Indonesia
- Orica Australia Pty. Ltd.
- Borneo Indobara - Indonesia
- Romanian Commodities Exchange
- Kideco Jaya Agung - Indonesia
- White Energy Company Limited
- McConnell Dowell - Australia
- Coal and Oil Company - UAE
- Central Java Power - Indonesia
- TeaM Sual Corporation - Philippines
- IEA Clean Coal Centre - UK
- Medco Energi Mining Internasional
- Energy Link Ltd, New Zealand
- Cement Manufacturers Association - India
- Goldman Sachs - Singapore
- Anglo American - United Kingdom
- Vizag Seaport Private Limited - India
- Australian Commodity Traders Exchange
- Riau Bara Harum - Indonesia
- Malabar Cements Ltd - India
- Commonwealth Bank - Australia
- Simpson Spence & Young - Indonesia
- Central Electricity Authority - India
- Metalloyd Limited - United Kingdom
- Planning Commission, India
- Global Coal Blending Company Limited - Australia
- Kapuas Tunggal Persada - Indonesia
- Xindia Steels Limited - India
- Videocon Industries ltd - India
- Gujarat Sidhee Cement - India
- The Treasury - Australian Government
- Manunggal Multi Energi - Indonesia
- Eastern Coal Council - USA
- Global Business Power Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Petron Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Deloitte Consulting - India
- Standard Chartered Bank - UAE
- Bhatia International Limited - India
- OPG Power Generation Pvt Ltd - India
- Ministry of Transport, Egypt
- San Jose City I Power Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Kumho Petrochemical, South Korea
- Lanco Infratech Ltd - India
- Binh Thuan Hamico - Vietnam
- Bulk Trading Sa - Switzerland
- Kohat Cement Company Ltd. - Pakistan
- Bangladesh Power Developement Board
- Pendopo Energi Batubara - Indonesia
- Kaltim Prima Coal - Indonesia
- Kepco SPC Power Corporation, Philippines
- London Commodity Brokers - England
- Indo Tambangraya Megah - Indonesia
- Banpu Public Company Limited - Thailand
- CIMB Investment Bank - Malaysia
- Trasteel International SA, Italy
- Mercuria Energy - Indonesia
- Ministry of Mines - Canada
- Karaikal Port Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- Jindal Steel & Power Ltd - India
- Kobexindo Tractors - Indoneisa
- Star Paper Mills Limited - India
- Ambuja Cements Ltd - India
- Heidelberg Cement - Germany
- Sakthi Sugars Limited - India
- CNBM International Corporation - China
- Sical Logistics Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Rio Tinto Coal - Australia
- Grasim Industreis Ltd - India
- The University of Queensland
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Indika Energy - Indonesia
- Africa Commodities Group - South Africa
- Parliament of New Zealand
- IHS Mccloskey Coal Group - USA
- Price Waterhouse Coopers - Russia
- LBH Netherlands Bv - Netherlands
- Savvy Resources Ltd - HongKong
- Intertek Mineral Services - Indonesia
- Minerals Council of Australia
- Edison Trading Spa - Italy
- Essar Steel Hazira Ltd - India
- Antam Resourcindo - Indonesia
- Siam City Cement PLC, Thailand
- ASAPP Information Group - India
- Altura Mining Limited, Indonesia
- Semirara Mining Corp, Philippines
- Billiton Holdings Pty Ltd - Australia
- Jaiprakash Power Ventures ltd
- Independent Power Producers Association of India
- Oldendorff Carriers - Singapore
- GVK Power & Infra Limited - India
- Rashtriya Ispat Nigam Limited - India
- Aditya Birla Group - India
- South Luzon Thermal Energy Corporation
- Vedanta Resources Plc - India
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