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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, 22 March 24
INDONESIA APPROVES 922.14 MLN T COAL PRODUCTION QUOTA FOR 2024, ABOVE TARGET - REUTERS
Indonesia has approved coal production quotas totalling 922.14 million metric tons for 2024, Bambang Suswantono, a senior official at the mining mi ...
Friday, 22 March 24
CHINA COAL INDUSTRY GROUP EXPECTS OUTPUT GROWTH TO SLOW IN 2024 - REUTERS
China’s coal output is expected to increase 36 million metric tons, or 0.8%, to about 4.7 billion tonnes in 2024, a Chinese coal industry gro ...
Monday, 18 March 24
THREE KEY TAKEAWAYS FROM OUR EUROPE GAS MARKETS SHORT-TERM OUTLOOK Q1 2024 - WOOD MACKENZIE
European gas prices are currently back to pre-crisis levels, but with a complex series of factors affecting future supply and demand, are they set ...
Wednesday, 06 March 24
INDONESIA AIMS TO FINISH MINING OUTPUT QUOTAS APPROVAL BY END-MARCH, OFFICIAL SAYS - REUTERS
Indonesia’s has approved the mining production quotarequests from more than 120mineral companies and aims to complete the approval process th ...
Monday, 04 March 24
IS YOUR GUARANTEE A GUARANTEE? NOTE TO SHIPOWNERS - GARD
KNOWLEDGE TO ELEVATE
The law of guarantees is not always obvious or easy to understand without proper guidance. This article clarifies the dif ...
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Showing 26 to 30 news of total 6871 |
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- Aboitiz Power Corporation - Philippines
- Coastal Gujarat Power Limited - India
- San Jose City I Power Corp, Philippines
- Tamil Nadu electricity Board
- Indian Energy Exchange, India
- Holcim Trading Pte Ltd - Singapore
- Anglo American - United Kingdom
- Siam City Cement - Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Semirara Mining and Power Corporation, Philippines
- Bhatia International Limited - India
- Sakthi Sugars Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Agrawal Coal Company - India
- Iligan Light & Power Inc, Philippines
- ICICI Bank Limited - India
- Petron Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- Antam Resourcindo - Indonesia
- Globalindo Alam Lestari - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Romanian Commodities Exchange
- Sree Jayajothi Cements Limited - India
- Edison Trading Spa - Italy
- SN Aboitiz Power Inc, Philippines
- Altura Mining Limited, Indonesia
- Thai Mozambique Logistica
- CIMB Investment Bank - Malaysia
- Meenaskhi Energy Private Limited - India
- Electricity Authority, New Zealand
- Sindya Power Generating Company Private Ltd
- Bukit Makmur.PT - Indonesia
- Simpson Spence & Young - Indonesia
- Mjunction Services Limited - India
- Vedanta Resources Plc - India
- Heidelberg Cement - Germany
- Pipit Mutiara Jaya. PT, Indonesia
- Minerals Council of Australia
- The Treasury - Australian Government
- Parliament of New Zealand
- Essar Steel Hazira Ltd - India
- New Zealand Coal & Carbon
- Toyota Tsusho Corporation, Japan
- Salva Resources Pvt Ltd - India
- London Commodity Brokers - England
- Krishnapatnam Port Company Ltd. - India
- Gujarat Mineral Development Corp Ltd - India
- GMR Energy Limited - India
- Metalloyd Limited - United Kingdom
- Indo Tambangraya Megah - Indonesia
- The State Trading Corporation of India Ltd
- Trasteel International SA, Italy
- Grasim Industreis Ltd - India
- Energy Development Corp, Philippines
- Central Electricity Authority - India
- Bukit Asam (Persero) Tbk - Indonesia
- SMC Global Power, Philippines
- Australian Commodity Traders Exchange
- Petrochimia International Co. Ltd.- Taiwan
- Thiess Contractors Indonesia
- LBH Netherlands Bv - Netherlands
- Africa Commodities Group - South Africa
- Binh Thuan Hamico - Vietnam
- Gujarat Electricity Regulatory Commission - India
- Manunggal Multi Energi - Indonesia
- Wood Mackenzie - Singapore
- Bangladesh Power Developement Board
- Bhoruka Overseas - Indonesia
- Jindal Steel & Power Ltd - India
- Meralco Power Generation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Cigading International Bulk Terminal - Indonesia
- Electricity Generating Authority of Thailand
- Goldman Sachs - Singapore
- Tata Chemicals Ltd - India
- MS Steel International - UAE
- OPG Power Generation Pvt Ltd - India
- Indogreen Group - Indonesia
- Gujarat Sidhee Cement - India
- Ind-Barath Power Infra Limited - India
- GAC Shipping (India) Pvt Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bhushan Steel Limited - India
- Coalindo Energy - Indonesia
- Mercator Lines Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- CNBM International Corporation - China
- ASAPP Information Group - India
- India Bulls Power Limited - India
- Marubeni Corporation - India
- Sinarmas Energy and Mining - Indonesia
- Banpu Public Company Limited - Thailand
- Kohat Cement Company Ltd. - Pakistan
- Karbindo Abesyapradhi - Indoneisa
- Parry Sugars Refinery, India
- Central Java Power - Indonesia
- Indian Oil Corporation Limited
- Ceylon Electricity Board - Sri Lanka
- Bayan Resources Tbk. - Indonesia
- Standard Chartered Bank - UAE
- Medco Energi Mining Internasional
- Renaissance Capital - South Africa
- Kapuas Tunggal Persada - Indonesia
- Price Waterhouse Coopers - Russia
- Global Coal Blending Company Limited - Australia
- Videocon Industries ltd - India
- Malabar Cements Ltd - India
- Vizag Seaport Private Limited - India
- Ministry of Mines - Canada
- Chettinad Cement Corporation Ltd - India
- Uttam Galva Steels Limited - India
- Interocean Group of Companies - India
- IHS Mccloskey Coal Group - USA
- Jorong Barutama Greston.PT - Indonesia
- Madhucon Powers Ltd - India
- Maheswari Brothers Coal Limited - India
- Kaltim Prima Coal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Rio Tinto Coal - Australia
- Power Finance Corporation Ltd., India
- Formosa Plastics Group - Taiwan
- Ambuja Cements Ltd - India
- Bukit Baiduri Energy - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- McConnell Dowell - Australia
- Siam City Cement PLC, Thailand
- Miang Besar Coal Terminal - Indonesia
- South Luzon Thermal Energy Corporation
- Sarangani Energy Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Wilmar Investment Holdings
- PTC India Limited - India
- Port Waratah Coal Services - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Independent Power Producers Association of India
- Straits Asia Resources Limited - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Indonesian Coal Mining Association
- Larsen & Toubro Limited - India
- Planning Commission, India
- Energy Link Ltd, New Zealand
- Mercuria Energy - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Savvy Resources Ltd - HongKong
- Leighton Contractors Pty Ltd - Australia
- Intertek Mineral Services - Indonesia
- IEA Clean Coal Centre - UK
- Ministry of Finance - Indonesia
- PowerSource Philippines DevCo
- TeaM Sual Corporation - Philippines
- Latin American Coal - Colombia
- Posco Energy - South Korea
- Bharathi Cement Corporation - India
- Kepco SPC Power Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Sical Logistics Limited - India
- Jaiprakash Power Ventures ltd
- The University of Queensland
- Global Business Power Corporation, Philippines
- Deloitte Consulting - India
- Indika Energy - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Timah Investasi Mineral - Indoneisa
- Alfred C Toepfer International GmbH - Germany
- Coal and Oil Company - UAE
- GVK Power & Infra Limited - India
- Directorate Of Revenue Intelligence - India
- Maharashtra Electricity Regulatory Commission - India
- Commonwealth Bank - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- AsiaOL BioFuels Corp., Philippines
- Dalmia Cement Bharat India
- Xindia Steels Limited - India
- Attock Cement Pakistan Limited
- Karaikal Port Pvt Ltd - India
- Carbofer General Trading SA - India
- Kobexindo Tractors - Indoneisa
- Ministry of Transport, Egypt
- VISA Power Limited - India
- Borneo Indobara - Indonesia
- Orica Mining Services - Indonesia
- Aditya Birla Group - India
- Star Paper Mills Limited - India
- White Energy Company Limited
- Samtan Co., Ltd - South Korea
- Makarim & Taira - Indonesia
- PNOC Exploration Corporation - Philippines
- Kartika Selabumi Mining - Indonesia
- Therma Luzon, Inc, Philippines
- Sojitz Corporation - Japan
- Kumho Petrochemical, South Korea
- International Coal Ventures Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- European Bulk Services B.V. - Netherlands
- Chamber of Mines of South Africa
- SMG Consultants - Indonesia
- Bulk Trading Sa - Switzerland
- Merrill Lynch Commodities Europe
- Economic Council, Georgia
- GN Power Mariveles Coal Plant, Philippines
- Singapore Mercantile Exchange
- Australian Coal Association
- Mintek Dendrill Indonesia
- Eastern Coal Council - USA
- Lanco Infratech Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Directorate General of MIneral and Coal - Indonesia
- Orica Australia Pty. Ltd.
- Oldendorff Carriers - Singapore
- Barasentosa Lestari - Indonesia
- Cement Manufacturers Association - India
- Georgia Ports Authority, United States
- Semirara Mining Corp, Philippines
- Eastern Energy - Thailand
- Baramulti Group, Indonesia
- Riau Bara Harum - Indonesia
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