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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 $75/bbl over the next few years.
I do, however, believe it is beyond the ability of men to predict the exact shape of the swing cycle, in terms of the period and cycle frequency.
Source: The Jakarta Post
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The writer has been working in the oil and gas business for about 30 years.
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Thursday, 05 March 15
BUKIT ASAM BOOKED US$ 1 BILLION REVENUE IN 2014
COALspot.com: Indonesian publicly listed and state owned coal miner PT. Bukit Asam, has announced that, the revenue of the company for the period J ...
Wednesday, 04 March 15
AN AGENDA FOR CHANGE - FITCH INDONESIA CONFERENCE
Fitch Indonesia Conference - 5 March 2015
Fitch Ratings will host its annual Indonesia conference on 5 March 2015.
The theme of this year ...
Wednesday, 04 March 15
KEEP CALM AND INVEST IN DRY - THEODORE NTALAKOS
Keep Calm and Carry On was originally a motivational poster, intended to raise the morale of the British public, produced by the British government ...
Tuesday, 03 March 15
INDONESIAN COAL EXPORT VOLUME TO DECLINE 50% BY 2019
COALspot.com: The Indonesian government is planning to reduce coal export volume by 50% within the next five years while keeping its coal productio ...
Tuesday, 03 March 15
INDIAN THERMAL COAL IMPORTS: STEAMING FORWARD - CLARKSONS
Coal-fired power stations comprise around 60% of India’s power output, and with domestic supply issues and favourable international coal pric ...
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- Karbindo Abesyapradhi - Indoneisa
- Sree Jayajothi Cements Limited - India
- Heidelberg Cement - Germany
- AsiaOL BioFuels Corp., Philippines
- Krishnapatnam Port Company Ltd. - India
- Mintek Dendrill Indonesia
- Riau Bara Harum - Indonesia
- Singapore Mercantile Exchange
- International Coal Ventures Pvt Ltd - India
- New Zealand Coal & Carbon
- Deloitte Consulting - India
- Georgia Ports Authority, United States
- PetroVietnam Power Coal Import and Supply Company
- Vizag Seaport Private Limited - India
- Toyota Tsusho Corporation, Japan
- Coastal Gujarat Power Limited - India
- Jindal Steel & Power Ltd - India
- Madhucon Powers Ltd - India
- CIMB Investment Bank - Malaysia
- Standard Chartered Bank - UAE
- Rashtriya Ispat Nigam Limited - India
- Kalimantan Lumbung Energi - Indonesia
- ICICI Bank Limited - India
- Sinarmas Energy and Mining - Indonesia
- Eastern Energy - Thailand
- Siam City Cement - Thailand
- VISA Power Limited - India
- Binh Thuan Hamico - Vietnam
- Simpson Spence & Young - Indonesia
- Maheswari Brothers Coal Limited - India
- Lanco Infratech Ltd - India
- OPG Power Generation Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Kapuas Tunggal Persada - Indonesia
- Malabar Cements Ltd - India
- TeaM Sual Corporation - Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- PNOC Exploration Corporation - Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Transport, Egypt
- Mjunction Services Limited - India
- Metalloyd Limited - United Kingdom
- Attock Cement Pakistan Limited
- Planning Commission, India
- Savvy Resources Ltd - HongKong
- Meralco Power Generation, Philippines
- Australian Commodity Traders Exchange
- Ind-Barath Power Infra Limited - India
- Semirara Mining Corp, Philippines
- Eastern Coal Council - USA
- Kideco Jaya Agung - Indonesia
- Parliament of New Zealand
- Siam City Cement PLC, Thailand
- Directorate General of MIneral and Coal - Indonesia
- Indonesian Coal Mining Association
- Alfred C Toepfer International GmbH - Germany
- Global Business Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Electricity Generating Authority of Thailand
- Kaltim Prima Coal - Indonesia
- Aboitiz Power Corporation - Philippines
- Energy Link Ltd, New Zealand
- PowerSource Philippines DevCo
- SN Aboitiz Power Inc, Philippines
- MS Steel International - UAE
- Chettinad Cement Corporation Ltd - India
- Intertek Mineral Services - Indonesia
- Gujarat Sidhee Cement - India
- Tamil Nadu electricity Board
- European Bulk Services B.V. - Netherlands
- Kumho Petrochemical, South Korea
- India Bulls Power Limited - India
- Rio Tinto Coal - Australia
- Sojitz Corporation - Japan
- LBH Netherlands Bv - Netherlands
- Electricity Authority, New Zealand
- Kartika Selabumi Mining - Indonesia
- Orica Mining Services - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Indo Tambangraya Megah - Indonesia
- Wilmar Investment Holdings
- London Commodity Brokers - England
- Salva Resources Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Meenaskhi Energy Private Limited - India
- Directorate Of Revenue Intelligence - India
- Bukit Baiduri Energy - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Economic Council, Georgia
- The State Trading Corporation of India Ltd
- Thai Mozambique Logistica
- Iligan Light & Power Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Kepco SPC Power Corporation, Philippines
- Star Paper Mills Limited - India
- Coal and Oil Company - UAE
- Xindia Steels Limited - India
- Semirara Mining and Power Corporation, Philippines
- GAC Shipping (India) Pvt Ltd
- Globalindo Alam Lestari - Indonesia
- Indian Oil Corporation Limited
- Bahari Cakrawala Sebuku - Indonesia
- Carbofer General Trading SA - India
- Grasim Industreis Ltd - India
- Bhushan Steel Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Baramulti Group, Indonesia
- Bulk Trading Sa - Switzerland
- SMG Consultants - Indonesia
- Bukit Makmur.PT - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhatia International Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Gujarat Mineral Development Corp Ltd - India
- Uttam Galva Steels Limited - India
- Gujarat Electricity Regulatory Commission - India
- Energy Development Corp, Philippines
- Barasentosa Lestari - Indonesia
- Ministry of Mines - Canada
- Antam Resourcindo - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Agrawal Coal Company - India
- Ministry of Finance - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Mercator Lines Limited - India
- Petron Corporation, Philippines
- Renaissance Capital - South Africa
- Latin American Coal - Colombia
- Kohat Cement Company Ltd. - Pakistan
- Thiess Contractors Indonesia
- Coalindo Energy - Indonesia
- GMR Energy Limited - India
- Port Waratah Coal Services - Australia
- ASAPP Information Group - India
- TNB Fuel Sdn Bhd - Malaysia
- Bangladesh Power Developement Board
- Sindya Power Generating Company Private Ltd
- Billiton Holdings Pty Ltd - Australia
- Maharashtra Electricity Regulatory Commission - India
- Cement Manufacturers Association - India
- Jorong Barutama Greston.PT - Indonesia
- Sical Logistics Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ceylon Electricity Board - Sri Lanka
- PTC India Limited - India
- Vedanta Resources Plc - India
- Central Electricity Authority - India
- Essar Steel Hazira Ltd - India
- Pendopo Energi Batubara - Indonesia
- Commonwealth Bank - Australia
- Mercuria Energy - Indonesia
- Marubeni Corporation - India
- Borneo Indobara - Indonesia
- Price Waterhouse Coopers - Russia
- Therma Luzon, Inc, Philippines
- Kobexindo Tractors - Indoneisa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Merrill Lynch Commodities Europe
- GVK Power & Infra Limited - India
- Sakthi Sugars Limited - India
- Formosa Plastics Group - Taiwan
- Romanian Commodities Exchange
- Jaiprakash Power Ventures ltd
- Posco Energy - South Korea
- Aditya Birla Group - India
- IEA Clean Coal Centre - UK
- Medco Energi Mining Internasional
- The Treasury - Australian Government
- Minerals Council of Australia
- McConnell Dowell - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Anglo American - United Kingdom
- Parry Sugars Refinery, India
- Manunggal Multi Energi - Indonesia
- Indogreen Group - Indonesia
- The University of Queensland
- Banpu Public Company Limited - Thailand
- Australian Coal Association
- Interocean Group of Companies - India
- CNBM International Corporation - China
- Independent Power Producers Association of India
- White Energy Company Limited
- Orica Australia Pty. Ltd.
- Samtan Co., Ltd - South Korea
- Bhoruka Overseas - Indonesia
- Videocon Industries ltd - India
- Dalmia Cement Bharat India
- Global Green Power PLC Corporation, Philippines
- Central Java Power - Indonesia
- Edison Trading Spa - Italy
- Sarangani Energy Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Karaikal Port Pvt Ltd - India
- Tata Chemicals Ltd - India
- Chamber of Mines of South Africa
- Power Finance Corporation Ltd., India
- Indika Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- IHS Mccloskey Coal Group - USA
- Makarim & Taira - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Global Coal Blending Company Limited - Australia
- Straits Asia Resources Limited - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMC Global Power, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Larsen & Toubro Limited - India
- Indian Energy Exchange, India
- Goldman Sachs - Singapore
- Oldendorff Carriers - Singapore
- Ambuja Cements Ltd - India
- Trasteel International SA, Italy
- Africa Commodities Group - South Africa
- Bharathi Cement Corporation - India
- Altura Mining Limited, Indonesia
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