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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Sunday, 08 March 15
FREIGHT RATES FROM INDONESIA TO INDIA IS TRENDING UP
COALspot.com: The freight market continued to see gains this week and all the indices were rose except for Cape index. The BDI was increased 4.62 p ...
Friday, 06 March 15
BALTIC DRY INDEX: IS THIS POWERFUL INDICATOR SIGNALING A GLOBAL RECESSION? - STREET AUTHORITY
Although memories of the Great Recession linger, a case can be made that better days lie ahead.
That’s because central banks around the ...
Friday, 06 March 15
U.S. WEEKLY COAL PRODUCTION ROSE 3.5% WEEK ON WEEK
COALspot.com – United States the world's one of the largest coal producers, produced approximately 17.1 million short tons (mmst) of coal ...
Thursday, 05 March 15
PANAMAX : THE ATLANTIC ROUND IS NOW PAYING AROUND US$ 5K PER DAY
COALspot.com: Handy - The activity in the handy/supra segment is back. “ We see more fresh cargo in the market for 2nd half March dates ...
Thursday, 05 March 15
INDIA WILL BE THE LARGEST DRIVER OF GLOBAL SEABORNE COKING COAL DEMAND GROWTH IN 2015 - WOOD MACKENZIE
Global demand growth will remain weak because of China’s negative demand growth.
COALspot.com: At Coaltrans India, Wood Mackenzie says I ...
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- Straits Asia Resources Limited - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Siam City Cement PLC, Thailand
- Anglo American - United Kingdom
- Port Waratah Coal Services - Australia
- TeaM Sual Corporation - Philippines
- Energy Link Ltd, New Zealand
- Essar Steel Hazira Ltd - India
- European Bulk Services B.V. - Netherlands
- Bhushan Steel Limited - India
- Coalindo Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Bharathi Cement Corporation - India
- Bukit Makmur.PT - Indonesia
- Meenaskhi Energy Private Limited - India
- Mercator Lines Limited - India
- Uttam Galva Steels Limited - India
- Simpson Spence & Young - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Java Power - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Power Finance Corporation Ltd., India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Asmin Koalindo Tuhup - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- CIMB Investment Bank - Malaysia
- Kumho Petrochemical, South Korea
- Vedanta Resources Plc - India
- Indian Oil Corporation Limited
- Neyveli Lignite Corporation Ltd, - India
- Thai Mozambique Logistica
- White Energy Company Limited
- Kapuas Tunggal Persada - Indonesia
- Parry Sugars Refinery, India
- PowerSource Philippines DevCo
- Eastern Energy - Thailand
- Savvy Resources Ltd - HongKong
- Baramulti Group, Indonesia
- Intertek Mineral Services - Indonesia
- Iligan Light & Power Inc, Philippines
- Energy Development Corp, Philippines
- Orica Mining Services - Indonesia
- ICICI Bank Limited - India
- Ceylon Electricity Board - Sri Lanka
- Goldman Sachs - Singapore
- San Jose City I Power Corp, Philippines
- Coal and Oil Company - UAE
- Maharashtra Electricity Regulatory Commission - India
- Rio Tinto Coal - Australia
- Ministry of Mines - Canada
- IEA Clean Coal Centre - UK
- Merrill Lynch Commodities Europe
- PetroVietnam Power Coal Import and Supply Company
- Meralco Power Generation, Philippines
- Mjunction Services Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Standard Chartered Bank - UAE
- Georgia Ports Authority, United States
- Marubeni Corporation - India
- Borneo Indobara - Indonesia
- Tamil Nadu electricity Board
- Chettinad Cement Corporation Ltd - India
- Dalmia Cement Bharat India
- Krishnapatnam Port Company Ltd. - India
- Directorate Of Revenue Intelligence - India
- Alfred C Toepfer International GmbH - Germany
- Altura Mining Limited, Indonesia
- India Bulls Power Limited - India
- Wilmar Investment Holdings
- IHS Mccloskey Coal Group - USA
- Planning Commission, India
- Price Waterhouse Coopers - Russia
- Kaltim Prima Coal - Indonesia
- Semirara Mining Corp, Philippines
- Kobexindo Tractors - Indoneisa
- London Commodity Brokers - England
- Formosa Plastics Group - Taiwan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Eastern Coal Council - USA
- Central Electricity Authority - India
- Videocon Industries ltd - India
- VISA Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Star Paper Mills Limited - India
- ASAPP Information Group - India
- Global Coal Blending Company Limited - Australia
- GMR Energy Limited - India
- Bukit Baiduri Energy - Indonesia
- LBH Netherlands Bv - Netherlands
- Timah Investasi Mineral - Indoneisa
- Electricity Generating Authority of Thailand
- Trasteel International SA, Italy
- Ministry of Finance - Indonesia
- Aboitiz Power Corporation - Philippines
- Wood Mackenzie - Singapore
- The State Trading Corporation of India Ltd
- Bhatia International Limited - India
- Makarim & Taira - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Ministry of Transport, Egypt
- McConnell Dowell - Australia
- Mintek Dendrill Indonesia
- Minerals Council of Australia
- Sindya Power Generating Company Private Ltd
- Malabar Cements Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Globalindo Alam Lestari - Indonesia
- PTC India Limited - India
- Indo Tambangraya Megah - Indonesia
- Economic Council, Georgia
- Commonwealth Bank - Australia
- Banpu Public Company Limited - Thailand
- New Zealand Coal & Carbon
- Interocean Group of Companies - India
- Chamber of Mines of South Africa
- Barasentosa Lestari - Indonesia
- Sarangani Energy Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Lanco Infratech Ltd - India
- Aditya Birla Group - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sical Logistics Limited - India
- Indian Energy Exchange, India
- Renaissance Capital - South Africa
- Romanian Commodities Exchange
- Holcim Trading Pte Ltd - Singapore
- Jindal Steel & Power Ltd - India
- Riau Bara Harum - Indonesia
- Bulk Trading Sa - Switzerland
- Manunggal Multi Energi - Indonesia
- Samtan Co., Ltd - South Korea
- Petrochimia International Co. Ltd.- Taiwan
- Karbindo Abesyapradhi - Indoneisa
- Deloitte Consulting - India
- Grasim Industreis Ltd - India
- Kartika Selabumi Mining - Indonesia
- MS Steel International - UAE
- Ind-Barath Power Infra Limited - India
- International Coal Ventures Pvt Ltd - India
- Attock Cement Pakistan Limited
- Bahari Cakrawala Sebuku - Indonesia
- Tata Chemicals Ltd - India
- OPG Power Generation Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- GVK Power & Infra Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Vizag Seaport Private Limited - India
- Binh Thuan Hamico - Vietnam
- Gujarat Sidhee Cement - India
- Africa Commodities Group - South Africa
- Ambuja Cements Ltd - India
- Indonesian Coal Mining Association
- Billiton Holdings Pty Ltd - Australia
- SMC Global Power, Philippines
- Toyota Tsusho Corporation, Japan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- CNBM International Corporation - China
- Cigading International Bulk Terminal - Indonesia
- Global Business Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Orica Australia Pty. Ltd.
- South Luzon Thermal Energy Corporation
- Carbofer General Trading SA - India
- Kalimantan Lumbung Energi - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Karaikal Port Pvt Ltd - India
- Parliament of New Zealand
- Bangladesh Power Developement Board
- Sakthi Sugars Limited - India
- Medco Energi Mining Internasional
- Oldendorff Carriers - Singapore
- Latin American Coal - Colombia
- Salva Resources Pvt Ltd - India
- Antam Resourcindo - Indonesia
- SMG Consultants - Indonesia
- Edison Trading Spa - Italy
- GAC Shipping (India) Pvt Ltd
- Bhoruka Overseas - Indonesia
- Heidelberg Cement - Germany
- Siam City Cement - Thailand
- Maheswari Brothers Coal Limited - India
- Australian Coal Association
- Leighton Contractors Pty Ltd - Australia
- Global Green Power PLC Corporation, Philippines
- Mercuria Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Indika Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Singapore Mercantile Exchange
- Semirara Mining and Power Corporation, Philippines
- The Treasury - Australian Government
- Electricity Authority, New Zealand
- Therma Luzon, Inc, Philippines
- Thiess Contractors Indonesia
- Cement Manufacturers Association - India
- Australian Commodity Traders Exchange
- Jorong Barutama Greston.PT - Indonesia
- Indogreen Group - Indonesia
- Sree Jayajothi Cements Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- PNOC Exploration Corporation - Philippines
- Sojitz Corporation - Japan
- Metalloyd Limited - United Kingdom
- Agrawal Coal Company - India
- Madhucon Powers Ltd - India
- SN Aboitiz Power Inc, Philippines
- Rashtriya Ispat Nigam Limited - India
- Posco Energy - South Korea
- Larsen & Toubro Limited - India
- Jaiprakash Power Ventures ltd
- Independent Power Producers Association of India
- Xindia Steels Limited - India
- The University of Queensland
- Coastal Gujarat Power Limited - India
- Petron Corporation, Philippines
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