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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, 28 June 24
INDIAN POWER STATIONS STOCKED WITH BUMPER COAL SUPPLY AS TRANSPORT WOES EASE - BUSINESS STANDARD
Even as power demand has touched a historic high of 250 gigawatts (Gw) amid sweltering heat this June, India’s power stations are stocked wit ...
Friday, 28 June 24
INDIA'S CY23 COAL USE LARGER THAN NORTH AMERICA, EUROPE COMBINED - THE HINDU
For the first time, India’s coal consumption surpassed that of North America and Europe combined in the calendar year 2023, said Energy Insti ...
Monday, 24 June 24
PLN'S FINANCIAL SUSTAINABILITY RESTS ON ACCELERATED COAL RETIREMENT AND RENEWABLES DEPLOYMENT - MUTYA YUSTIKA
On 28 May 2024, Indonesia’s national electricity utility, PT Perusahaan Listrik Negara (PLN), released its financial report for 2023. Althoug ...
Monday, 24 June 24
INDIA'S COAL-BASED POWER DEMAND AT ALL-TIME HIGH, GOVERNMENT SAYS - REUTERS
India’s demand for coal-based power has risen by 7.3% this fiscal year to an all-time high, the government said in a statement on Wednesday.
...
Monday, 24 June 24
CHINA'S COAL INDUSTRY TURNS GREENER THROUGH INNOVATIVE APPROACHES - PEOPLE'S DAILY
At an opencast mine operated by Inner Mongolia Pingzhuang Coal Group Co. Ltd., a subsidiary of CHN Energy Investment Group (CHN Energy), a 14-meter ...
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Showing 11 to 15 news of total 6871 |
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- Aboitiz Power Corporation - Philippines
- Kobexindo Tractors - Indoneisa
- Karaikal Port Pvt Ltd - India
- Antam Resourcindo - Indonesia
- GMR Energy Limited - India
- Kepco SPC Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- The Treasury - Australian Government
- Bhatia International Limited - India
- Baramulti Group, Indonesia
- LBH Netherlands Bv - Netherlands
- Xindia Steels Limited - India
- San Jose City I Power Corp, Philippines
- Bhoruka Overseas - Indonesia
- Siam City Cement - Thailand
- Coal and Oil Company - UAE
- International Coal Ventures Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- CIMB Investment Bank - Malaysia
- Kalimantan Lumbung Energi - Indonesia
- Global Green Power PLC Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Indian Energy Exchange, India
- Neyveli Lignite Corporation Ltd, - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Directorate Of Revenue Intelligence - India
- European Bulk Services B.V. - Netherlands
- Minerals Council of Australia
- Wood Mackenzie - Singapore
- Manunggal Multi Energi - Indonesia
- Coastal Gujarat Power Limited - India
- Interocean Group of Companies - India
- Bhushan Steel Limited - India
- GVK Power & Infra Limited - India
- SN Aboitiz Power Inc, Philippines
- Meralco Power Generation, Philippines
- Petron Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Indo Tambangraya Megah - Indonesia
- Bangladesh Power Developement Board
- Straits Asia Resources Limited - Singapore
- Energy Link Ltd, New Zealand
- Eastern Energy - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- New Zealand Coal & Carbon
- OPG Power Generation Pvt Ltd - India
- Aditya Birla Group - India
- Orica Mining Services - Indonesia
- Sojitz Corporation - Japan
- Bukit Asam (Persero) Tbk - Indonesia
- CNBM International Corporation - China
- Formosa Plastics Group - Taiwan
- Chamber of Mines of South Africa
- PTC India Limited - India
- Latin American Coal - Colombia
- Krishnapatnam Port Company Ltd. - India
- Meenaskhi Energy Private Limited - India
- Semirara Mining Corp, Philippines
- Agrawal Coal Company - India
- Makarim & Taira - Indonesia
- Tata Chemicals Ltd - India
- Grasim Industreis Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- GAC Shipping (India) Pvt Ltd
- Semirara Mining and Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Price Waterhouse Coopers - Russia
- Sarangani Energy Corporation, Philippines
- Indogreen Group - Indonesia
- Commonwealth Bank - Australia
- McConnell Dowell - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Economic Council, Georgia
- Uttam Galva Steels Limited - India
- Bayan Resources Tbk. - Indonesia
- Posco Energy - South Korea
- Independent Power Producers Association of India
- Banpu Public Company Limited - Thailand
- Global Business Power Corporation, Philippines
- VISA Power Limited - India
- Georgia Ports Authority, United States
- Rashtriya Ispat Nigam Limited - India
- Leighton Contractors Pty Ltd - Australia
- Mercuria Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Madhucon Powers Ltd - India
- Malabar Cements Ltd - India
- Bharathi Cement Corporation - India
- Energy Development Corp, Philippines
- Cement Manufacturers Association - India
- The University of Queensland
- Ceylon Electricity Board - Sri Lanka
- Indonesian Coal Mining Association
- Petrochimia International Co. Ltd.- Taiwan
- Ministry of Mines - Canada
- Intertek Mineral Services - Indonesia
- Electricity Authority, New Zealand
- AsiaOL BioFuels Corp., Philippines
- Port Waratah Coal Services - Australia
- Indian Oil Corporation Limited
- Ind-Barath Power Infra Limited - India
- Eastern Coal Council - USA
- Thai Mozambique Logistica
- Bank of Tokyo Mitsubishi UFJ Ltd
- TeaM Sual Corporation - Philippines
- Wilmar Investment Holdings
- Singapore Mercantile Exchange
- Metalloyd Limited - United Kingdom
- Tamil Nadu electricity Board
- Bukit Makmur.PT - Indonesia
- Barasentosa Lestari - Indonesia
- SMC Global Power, Philippines
- Australian Commodity Traders Exchange
- IEA Clean Coal Centre - UK
- Essar Steel Hazira Ltd - India
- Borneo Indobara - Indonesia
- White Energy Company Limited
- Pipit Mutiara Jaya. PT, Indonesia
- Simpson Spence & Young - Indonesia
- Therma Luzon, Inc, Philippines
- ASAPP Information Group - India
- Parry Sugars Refinery, India
- PowerSource Philippines DevCo
- TNB Fuel Sdn Bhd - Malaysia
- Kideco Jaya Agung - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Ministry of Finance - Indonesia
- Samtan Co., Ltd - South Korea
- Kapuas Tunggal Persada - Indonesia
- Carbofer General Trading SA - India
- Binh Thuan Hamico - Vietnam
- Sakthi Sugars Limited - India
- Edison Trading Spa - Italy
- Alfred C Toepfer International GmbH - Germany
- Savvy Resources Ltd - HongKong
- PNOC Exploration Corporation - Philippines
- Thiess Contractors Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Mercator Lines Limited - India
- Vizag Seaport Private Limited - India
- Central Java Power - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Global Coal Blending Company Limited - Australia
- Asmin Koalindo Tuhup - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- Maheswari Brothers Coal Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Heidelberg Cement - Germany
- Kumho Petrochemical, South Korea
- London Commodity Brokers - England
- Trasteel International SA, Italy
- Indika Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Jaiprakash Power Ventures ltd
- Videocon Industries ltd - India
- Gujarat Sidhee Cement - India
- MS Steel International - UAE
- Oldendorff Carriers - Singapore
- Vedanta Resources Plc - India
- Renaissance Capital - South Africa
- Miang Besar Coal Terminal - Indonesia
- SMG Consultants - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Star Paper Mills Limited - India
- ICICI Bank Limited - India
- Africa Commodities Group - South Africa
- Anglo American - United Kingdom
- Planning Commission, India
- Toyota Tsusho Corporation, Japan
- Pendopo Energi Batubara - Indonesia
- Sindya Power Generating Company Private Ltd
- GN Power Mariveles Coal Plant, Philippines
- Mjunction Services Limited - India
- Sree Jayajothi Cements Limited - India
- Jindal Steel & Power Ltd - India
- Romanian Commodities Exchange
- Riau Bara Harum - Indonesia
- Siam City Cement PLC, Thailand
- Orica Australia Pty. Ltd.
- Bulk Trading Sa - Switzerland
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PetroVietnam Power Coal Import and Supply Company
- Central Electricity Authority - India
- Salva Resources Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Dalmia Cement Bharat India
- Goldman Sachs - Singapore
- Attock Cement Pakistan Limited
- Standard Chartered Bank - UAE
- Parliament of New Zealand
- India Bulls Power Limited - India
- Electricity Generating Authority of Thailand
- Ministry of Transport, Egypt
- Globalindo Alam Lestari - Indonesia
- Lanco Infratech Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Medco Energi Mining Internasional
- Bukit Baiduri Energy - Indonesia
- Mintek Dendrill Indonesia
- Coalindo Energy - Indonesia
- Chettinad Cement Corporation Ltd - India
- Sical Logistics Limited - India
- Rio Tinto Coal - Australia
- Larsen & Toubro Limited - India
- Merrill Lynch Commodities Europe
- Deloitte Consulting - India
- Kaltim Prima Coal - Indonesia
- Ambuja Cements Ltd - India
- Marubeni Corporation - India
- Jorong Barutama Greston.PT - Indonesia
- Australian Coal Association
- Power Finance Corporation Ltd., India
- The State Trading Corporation of India Ltd
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