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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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Wednesday, 11 March 15
RICHARDS BAY COAL SWAPS DROP $ 3.65 - 4.0/T W-O-W
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q2' 2015 declined month over month and week on week.
The Q2 swap has fell US$ ...
Wednesday, 11 March 15
DRY BULK MARKET CLOSED OFF ON THE GREEN FOR A SECOND WEEK IN A ROW - INTERMODAL
COALspot.com: The Dry Bulk market closed off on the green for a second week in a row, while the performance of Capesizes hindered a more substantia ...
Wednesday, 11 March 15
MARKET INSIGHT : NEWBUILDINGS - PANOS TSILINGIRIS
From a cost-based, buy-low perspective, there is currently a buying opportunity in the second-hand dry bulk market. I am an anti-cyclical (buy-low) ...
Wednesday, 11 March 15
DRY BULK MARKET: ALL IS NOT LOST FOR A RECOVERY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The low cost of commodities across the board could trigger an increase of trade among many countries, which in turn could lead to a recovery of the ...
Wednesday, 11 March 15
U.S. ELECTRIC GENERATING COMPANIES TO ADD MORE THAN 20 GW OF GENERATING CAPACITY IN 2015; 16 GW OF GENERATING CAPACITY IS EXPECTED TO RETIRE IN 2015
COALspot.com: In 2015, electric generating companies in U.S. expect to add more than 20 gigawatts (GW) of utility-scale generating capacity to the ...
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- Grasim Industreis Ltd - India
- Aditya Birla Group - India
- Siam City Cement - Thailand
- Marubeni Corporation - India
- Medco Energi Mining Internasional
- Port Waratah Coal Services - Australia
- Power Finance Corporation Ltd., India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sree Jayajothi Cements Limited - India
- Mercator Lines Limited - India
- Electricity Authority, New Zealand
- CIMB Investment Bank - Malaysia
- Barasentosa Lestari - Indonesia
- Africa Commodities Group - South Africa
- Coastal Gujarat Power Limited - India
- SN Aboitiz Power Inc, Philippines
- SMG Consultants - Indonesia
- Sarangani Energy Corporation, Philippines
- Romanian Commodities Exchange
- Kartika Selabumi Mining - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Global Coal Blending Company Limited - Australia
- Kideco Jaya Agung - Indonesia
- Chettinad Cement Corporation Ltd - India
- Indika Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- Siam City Cement PLC, Thailand
- Trasteel International SA, Italy
- Kobexindo Tractors - Indoneisa
- Orica Australia Pty. Ltd.
- Renaissance Capital - South Africa
- Coalindo Energy - Indonesia
- McConnell Dowell - Australia
- SMC Global Power, Philippines
- Latin American Coal - Colombia
- Bhatia International Limited - India
- Dalmia Cement Bharat India
- Therma Luzon, Inc, Philippines
- TeaM Sual Corporation - Philippines
- New Zealand Coal & Carbon
- Pendopo Energi Batubara - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Altura Mining Limited, Indonesia
- Bhoruka Overseas - Indonesia
- The Treasury - Australian Government
- Ceylon Electricity Board - Sri Lanka
- Economic Council, Georgia
- Mercuria Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Bukit Baiduri Energy - Indonesia
- Sojitz Corporation - Japan
- Sindya Power Generating Company Private Ltd
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Globalindo Alam Lestari - Indonesia
- Essar Steel Hazira Ltd - India
- Indo Tambangraya Megah - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Deloitte Consulting - India
- Videocon Industries ltd - India
- Attock Cement Pakistan Limited
- GN Power Mariveles Coal Plant, Philippines
- Tata Chemicals Ltd - India
- Banpu Public Company Limited - Thailand
- Mintek Dendrill Indonesia
- Savvy Resources Ltd - HongKong
- Thiess Contractors Indonesia
- Larsen & Toubro Limited - India
- Anglo American - United Kingdom
- Aboitiz Power Corporation - Philippines
- Minerals Council of Australia
- Commonwealth Bank - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Jindal Steel & Power Ltd - India
- PowerSource Philippines DevCo
- Chamber of Mines of South Africa
- Makarim & Taira - Indonesia
- Wilmar Investment Holdings
- Heidelberg Cement - Germany
- CNBM International Corporation - China
- Meenaskhi Energy Private Limited - India
- Krishnapatnam Port Company Ltd. - India
- Bangladesh Power Developement Board
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Eastern Coal Council - USA
- Kohat Cement Company Ltd. - Pakistan
- LBH Netherlands Bv - Netherlands
- Agrawal Coal Company - India
- Australian Coal Association
- Edison Trading Spa - Italy
- Binh Thuan Hamico - Vietnam
- Borneo Indobara - Indonesia
- Maheswari Brothers Coal Limited - India
- Semirara Mining and Power Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Global Business Power Corporation, Philippines
- Malabar Cements Ltd - India
- Independent Power Producers Association of India
- Uttam Galva Steels Limited - India
- Star Paper Mills Limited - India
- Metalloyd Limited - United Kingdom
- Rio Tinto Coal - Australia
- International Coal Ventures Pvt Ltd - India
- Georgia Ports Authority, United States
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bhushan Steel Limited - India
- Central Java Power - Indonesia
- Ministry of Mines - Canada
- Carbofer General Trading SA - India
- Kapuas Tunggal Persada - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Goldman Sachs - Singapore
- Meralco Power Generation, Philippines
- MS Steel International - UAE
- Ind-Barath Power Infra Limited - India
- Australian Commodity Traders Exchange
- Vedanta Resources Plc - India
- Indonesian Coal Mining Association
- Karaikal Port Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- Ministry of Transport, Egypt
- Energy Link Ltd, New Zealand
- European Bulk Services B.V. - Netherlands
- Alfred C Toepfer International GmbH - Germany
- Sical Logistics Limited - India
- GAC Shipping (India) Pvt Ltd
- Madhucon Powers Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Bukit Makmur.PT - Indonesia
- Petron Corporation, Philippines
- Riau Bara Harum - Indonesia
- San Jose City I Power Corp, Philippines
- Oldendorff Carriers - Singapore
- Intertek Mineral Services - Indonesia
- Bayan Resources Tbk. - Indonesia
- Kepco SPC Power Corporation, Philippines
- Ambuja Cements Ltd - India
- Formosa Plastics Group - Taiwan
- Thai Mozambique Logistica
- London Commodity Brokers - England
- Sinarmas Energy and Mining - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bulk Trading Sa - Switzerland
- Singapore Mercantile Exchange
- ICICI Bank Limited - India
- GMR Energy Limited - India
- Holcim Trading Pte Ltd - Singapore
- Parliament of New Zealand
- Baramulti Group, Indonesia
- Posco Energy - South Korea
- Indian Oil Corporation Limited
- Offshore Bulk Terminal Pte Ltd, Singapore
- Central Electricity Authority - India
- Maharashtra Electricity Regulatory Commission - India
- Eastern Energy - Thailand
- Global Green Power PLC Corporation, Philippines
- Indogreen Group - Indonesia
- South Luzon Thermal Energy Corporation
- Toyota Tsusho Corporation, Japan
- ASAPP Information Group - India
- Lanco Infratech Ltd - India
- The University of Queensland
- VISA Power Limited - India
- AsiaOL BioFuels Corp., Philippines
- White Energy Company Limited
- Vijayanagar Sugar Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Sakthi Sugars Limited - India
- Semirara Mining Corp, Philippines
- Simpson Spence & Young - Indonesia
- The State Trading Corporation of India Ltd
- Samtan Co., Ltd - South Korea
- Xindia Steels Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Directorate Of Revenue Intelligence - India
- Mjunction Services Limited - India
- OPG Power Generation Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Price Waterhouse Coopers - Russia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Wood Mackenzie - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Tamil Nadu electricity Board
- GVK Power & Infra Limited - India
- Antam Resourcindo - Indonesia
- Iligan Light & Power Inc, Philippines
- PTC India Limited - India
- Energy Development Corp, Philippines
- Vizag Seaport Private Limited - India
- Standard Chartered Bank - UAE
- Orica Mining Services - Indonesia
- IEA Clean Coal Centre - UK
- Gujarat Sidhee Cement - India
- Interocean Group of Companies - India
- Kumho Petrochemical, South Korea
- Electricity Generating Authority of Thailand
- Bharathi Cement Corporation - India
- Neyveli Lignite Corporation Ltd, - India
- IHS Mccloskey Coal Group - USA
- Merrill Lynch Commodities Europe
- Cement Manufacturers Association - India
- India Bulls Power Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Parry Sugars Refinery, India
- Ministry of Finance - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Gujarat Electricity Regulatory Commission - India
- Indian Energy Exchange, India
- Coal and Oil Company - UAE
- Kaltim Prima Coal - Indonesia
- Salva Resources Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Planning Commission, India
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