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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, 13 March 15
U.S. COAL PRODUCTION UP 2.3% WEEK OVER WEEK
COALspot.com – United States the world's one of the largest coal producers, produced approximately 17.5 million short tons (mmst) of coal ...
Friday, 13 March 15
ADARO RECORDED A 7% INCREASE IN EBITDA OF $877 MILLION IN 2014
“Coal market continues to be difficult and challenging” – Adaro Energy
The world’s Top 5 thermal coal exporter, ...
Thursday, 12 March 15
CAPESIZE : ACTIVITY IS LOW; PANAMAX: BIT MORE ACTIVITY; HANDY: A FIRMING WEEK
Handy
It has been a firming week in both hemispheres this week and especially in the Pacific, says Fearnleys AS in its week's week report.
...
Thursday, 12 March 15
COAL MINERS REMAIN UNDER PRESSURE AS GLUT CONTINUES - THE JAKARTA POST
Indonesia’s major coal miners reported a significant drop in their earnings last year as the sharp drop in the global demand, mainly from Chi ...
Thursday, 12 March 15
FOB INDONESIA COAL SWAP DROP TO $47.33 A TON IN THE WEEK ENDED MAR.6
COALspot.com: Indonesian coal swaps for delivery Q2' 2015 drop month on month and week over week.
The Q2 swap fell US$ 0.37 (0.78%) month ...
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- Directorate Of Revenue Intelligence - India
- Directorate General of MIneral and Coal - Indonesia
- IHS Mccloskey Coal Group - USA
- Interocean Group of Companies - India
- Orica Australia Pty. Ltd.
- Kaltim Prima Coal - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Central Java Power - Indonesia
- Videocon Industries ltd - India
- Star Paper Mills Limited - India
- ICICI Bank Limited - India
- PTC India Limited - India
- Sindya Power Generating Company Private Ltd
- AsiaOL BioFuels Corp., Philippines
- The University of Queensland
- Africa Commodities Group - South Africa
- Riau Bara Harum - Indonesia
- Karaikal Port Pvt Ltd - India
- Georgia Ports Authority, United States
- Essar Steel Hazira Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Eastern Coal Council - USA
- Rashtriya Ispat Nigam Limited - India
- Energy Link Ltd, New Zealand
- Savvy Resources Ltd - HongKong
- Malabar Cements Ltd - India
- Aditya Birla Group - India
- Tata Chemicals Ltd - India
- SN Aboitiz Power Inc, Philippines
- Antam Resourcindo - Indonesia
- Anglo American - United Kingdom
- Kalimantan Lumbung Energi - Indonesia
- GVK Power & Infra Limited - India
- Sakthi Sugars Limited - India
- Ministry of Transport, Egypt
- Krishnapatnam Port Company Ltd. - India
- Binh Thuan Hamico - Vietnam
- Straits Asia Resources Limited - Singapore
- Wilmar Investment Holdings
- TeaM Sual Corporation - Philippines
- The State Trading Corporation of India Ltd
- Holcim Trading Pte Ltd - Singapore
- Sarangani Energy Corporation, Philippines
- Renaissance Capital - South Africa
- Kideco Jaya Agung - Indonesia
- Sree Jayajothi Cements Limited - India
- Alfred C Toepfer International GmbH - Germany
- Australian Commodity Traders Exchange
- Ceylon Electricity Board - Sri Lanka
- Maharashtra Electricity Regulatory Commission - India
- Gujarat Mineral Development Corp Ltd - India
- Thai Mozambique Logistica
- Singapore Mercantile Exchange
- Attock Cement Pakistan Limited
- Larsen & Toubro Limited - India
- Barasentosa Lestari - Indonesia
- Lanco Infratech Ltd - India
- Samtan Co., Ltd - South Korea
- Meenaskhi Energy Private Limited - India
- London Commodity Brokers - England
- Jaiprakash Power Ventures ltd
- Indian Oil Corporation Limited
- Toyota Tsusho Corporation, Japan
- McConnell Dowell - Australia
- Banpu Public Company Limited - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Electricity Generating Authority of Thailand
- SMG Consultants - Indonesia
- Wood Mackenzie - Singapore
- Goldman Sachs - Singapore
- Mjunction Services Limited - India
- Central Electricity Authority - India
- Power Finance Corporation Ltd., India
- Tamil Nadu electricity Board
- Coastal Gujarat Power Limited - India
- Siam City Cement - Thailand
- Asmin Koalindo Tuhup - Indonesia
- Ind-Barath Power Infra Limited - India
- MS Steel International - UAE
- PNOC Exploration Corporation - Philippines
- Posco Energy - South Korea
- Bhatia International Limited - India
- Minerals Council of Australia
- Bahari Cakrawala Sebuku - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Altura Mining Limited, Indonesia
- Commonwealth Bank - Australia
- European Bulk Services B.V. - Netherlands
- VISA Power Limited - India
- GAC Shipping (India) Pvt Ltd
- Iligan Light & Power Inc, Philippines
- Formosa Plastics Group - Taiwan
- SMC Global Power, Philippines
- Kepco SPC Power Corporation, Philippines
- Thiess Contractors Indonesia
- Bayan Resources Tbk. - Indonesia
- International Coal Ventures Pvt Ltd - India
- Bukit Baiduri Energy - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Bulk Trading Sa - Switzerland
- Billiton Holdings Pty Ltd - Australia
- Mercuria Energy - Indonesia
- Kumho Petrochemical, South Korea
- Kartika Selabumi Mining - Indonesia
- Indian Energy Exchange, India
- Heidelberg Cement - Germany
- Indo Tambangraya Megah - Indonesia
- Mintek Dendrill Indonesia
- Metalloyd Limited - United Kingdom
- Ambuja Cements Ltd - India
- LBH Netherlands Bv - Netherlands
- Uttam Galva Steels Limited - India
- Global Business Power Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Deloitte Consulting - India
- Price Waterhouse Coopers - Russia
- Planning Commission, India
- Dalmia Cement Bharat India
- Port Waratah Coal Services - Australia
- Global Coal Blending Company Limited - Australia
- Indika Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Baramulti Group, Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Indogreen Group - Indonesia
- Maheswari Brothers Coal Limited - India
- Latin American Coal - Colombia
- Makarim & Taira - Indonesia
- Salva Resources Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Medco Energi Mining Internasional
- Australian Coal Association
- Jorong Barutama Greston.PT - Indonesia
- Chettinad Cement Corporation Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Madhucon Powers Ltd - India
- Parliament of New Zealand
- Ministry of Mines - Canada
- Kapuas Tunggal Persada - Indonesia
- Intertek Mineral Services - Indonesia
- Chamber of Mines of South Africa
- Aboitiz Power Corporation - Philippines
- Manunggal Multi Energi - Indonesia
- Ministry of Finance - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Miang Besar Coal Terminal - Indonesia
- PowerSource Philippines DevCo
- IEA Clean Coal Centre - UK
- Neyveli Lignite Corporation Ltd, - India
- Semirara Mining and Power Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Electricity Authority, New Zealand
- Xindia Steels Limited - India
- Edison Trading Spa - Italy
- Economic Council, Georgia
- GN Power Mariveles Coal Plant, Philippines
- The Treasury - Australian Government
- Rio Tinto Coal - Australia
- Bharathi Cement Corporation - India
- Gujarat Sidhee Cement - India
- CNBM International Corporation - China
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Meralco Power Generation, Philippines
- Borneo Indobara - Indonesia
- Leighton Contractors Pty Ltd - Australia
- India Bulls Power Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Kobexindo Tractors - Indoneisa
- Semirara Mining Corp, Philippines
- Gujarat Electricity Regulatory Commission - India
- Orica Mining Services - Indonesia
- Siam City Cement PLC, Thailand
- Bhoruka Overseas - Indonesia
- Coalindo Energy - Indonesia
- Eastern Energy - Thailand
- Merrill Lynch Commodities Europe
- Bangladesh Power Developement Board
- Oldendorff Carriers - Singapore
- New Zealand Coal & Carbon
- ASAPP Information Group - India
- Mercator Lines Limited - India
- Grasim Industreis Ltd - India
- Simpson Spence & Young - Indonesia
- Bhushan Steel Limited - India
- Sinarmas Energy and Mining - Indonesia
- Marubeni Corporation - India
- San Jose City I Power Corp, Philippines
- Parry Sugars Refinery, India
- Coal and Oil Company - UAE
- Energy Development Corp, Philippines
- Romanian Commodities Exchange
- OPG Power Generation Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- White Energy Company Limited
- Vedanta Resources Plc - India
- Global Green Power PLC Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Independent Power Producers Association of India
- Cigading International Bulk Terminal - Indonesia
- Agrawal Coal Company - India
- CIMB Investment Bank - Malaysia
- Cement Manufacturers Association - India
- Indonesian Coal Mining Association
- Petron Corporation, Philippines
- Carbofer General Trading SA - India
- Therma Luzon, Inc, Philippines
- Trasteel International SA, Italy
- Sical Logistics Limited - India
- Sojitz Corporation - Japan
- Vizag Seaport Private Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GMR Energy Limited - India
- Standard Chartered Bank - UAE
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