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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, 01 March 15
BDI INDEX SLIGHTLY UP CAUSED AN INCREASE IN THE PANAMAX, SUPARAMAX AND HANDY SIZE INDICES
COALspot.com: The freight market saw some gains this week and BDI was up 5.26 pct closed at 540 points. However the Cape index failed to follow BDI ...
Friday, 27 February 15
WEEKLY US COAL PRODUCTION DOWN AN ESTIMATED 14.0% FROM LAST WEEK - EIA
COALspot.com – United States the world's one of the largest coal producers, produced approximately 16.5 million short tons (mmst) of coal ...
Thursday, 26 February 15
DRY BULK MARKET COULD REBOUND FROM HISTORICAL LOWS IN THE COMING WEEKS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market could exit from its historical lows in the coming weeks, as Chinese buyers reenter the market after the holiday celebrations. T ...
Thursday, 26 February 15
COAL POLICY RISK: HIGHER ROYALTIES FOR IUP HOLDERS - BAHANA SECURITIES | JAKARTA POST
The Energy and Mineral Resources Ministry plans to raise coal royalties charged to mining operation permit (IUP) holders by the end of the first qu ...
Thursday, 26 February 15
DRY BULK MARKET LOOKING FOR POSITIVE MOMENTUM, BUT PROSPECTS REMAIN DIM - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
As the Baltic Dry Index (BDI) inched a bit higher over the past couple of sessions and the Chinese are returning to the market after a week long hi ...
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- Tamil Nadu electricity Board
- GMR Energy Limited - India
- Antam Resourcindo - Indonesia
- Cement Manufacturers Association - India
- San Jose City I Power Corp, Philippines
- Lanco Infratech Ltd - India
- Eastern Energy - Thailand
- Karaikal Port Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- Bhatia International Limited - India
- International Coal Ventures Pvt Ltd - India
- Energy Link Ltd, New Zealand
- AsiaOL BioFuels Corp., Philippines
- GN Power Mariveles Coal Plant, Philippines
- Mjunction Services Limited - India
- Therma Luzon, Inc, Philippines
- SMC Global Power, Philippines
- Trasteel International SA, Italy
- Grasim Industreis Ltd - India
- Wood Mackenzie - Singapore
- CIMB Investment Bank - Malaysia
- Posco Energy - South Korea
- Orica Mining Services - Indonesia
- Sical Logistics Limited - India
- Bhushan Steel Limited - India
- Medco Energi Mining Internasional
- Global Green Power PLC Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Merrill Lynch Commodities Europe
- Ceylon Electricity Board - Sri Lanka
- Neyveli Lignite Corporation Ltd, - India
- Dalmia Cement Bharat India
- Borneo Indobara - Indonesia
- Chamber of Mines of South Africa
- Kapuas Tunggal Persada - Indonesia
- Ministry of Transport, Egypt
- ICICI Bank Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Bangladesh Power Developement Board
- Port Waratah Coal Services - Australia
- Commonwealth Bank - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Petron Corporation, Philippines
- Tata Chemicals Ltd - India
- Singapore Mercantile Exchange
- South Luzon Thermal Energy Corporation
- Bayan Resources Tbk. - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Sinarmas Energy and Mining - Indonesia
- Sakthi Sugars Limited - India
- ASAPP Information Group - India
- Pipit Mutiara Jaya. PT, Indonesia
- Kaltim Prima Coal - Indonesia
- Metalloyd Limited - United Kingdom
- Georgia Ports Authority, United States
- White Energy Company Limited
- Formosa Plastics Group - Taiwan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Australian Commodity Traders Exchange
- Timah Investasi Mineral - Indoneisa
- Madhucon Powers Ltd - India
- Billiton Holdings Pty Ltd - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Holcim Trading Pte Ltd - Singapore
- Kumho Petrochemical, South Korea
- Marubeni Corporation - India
- IEA Clean Coal Centre - UK
- Vedanta Resources Plc - India
- Uttam Galva Steels Limited - India
- PowerSource Philippines DevCo
- Semirara Mining Corp, Philippines
- Gujarat Electricity Regulatory Commission - India
- Kideco Jaya Agung - Indonesia
- Sindya Power Generating Company Private Ltd
- Jaiprakash Power Ventures ltd
- London Commodity Brokers - England
- The Treasury - Australian Government
- Thiess Contractors Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Parliament of New Zealand
- LBH Netherlands Bv - Netherlands
- Sojitz Corporation - Japan
- Independent Power Producers Association of India
- Parry Sugars Refinery, India
- Coal and Oil Company - UAE
- Oldendorff Carriers - Singapore
- Meenaskhi Energy Private Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- PNOC Exploration Corporation - Philippines
- Eastern Coal Council - USA
- Chettinad Cement Corporation Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Indian Energy Exchange, India
- Essar Steel Hazira Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Electricity Authority, New Zealand
- Sree Jayajothi Cements Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Energy Development Corp, Philippines
- Sarangani Energy Corporation, Philippines
- Central Electricity Authority - India
- Siam City Cement PLC, Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kohat Cement Company Ltd. - Pakistan
- Salva Resources Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Indian Oil Corporation Limited
- Ambuja Cements Ltd - India
- Global Coal Blending Company Limited - Australia
- PetroVietnam Power Coal Import and Supply Company
- Interocean Group of Companies - India
- Star Paper Mills Limited - India
- Attock Cement Pakistan Limited
- Goldman Sachs - Singapore
- Anglo American - United Kingdom
- Videocon Industries ltd - India
- New Zealand Coal & Carbon
- Jindal Steel & Power Ltd - India
- Heidelberg Cement - Germany
- Aditya Birla Group - India
- Simpson Spence & Young - Indonesia
- Indonesian Coal Mining Association
- Rashtriya Ispat Nigam Limited - India
- Malabar Cements Ltd - India
- Power Finance Corporation Ltd., India
- Economic Council, Georgia
- SMG Consultants - Indonesia
- The University of Queensland
- Kartika Selabumi Mining - Indonesia
- Mintek Dendrill Indonesia
- Coalindo Energy - Indonesia
- Carbofer General Trading SA - India
- Bukit Asam (Persero) Tbk - Indonesia
- Central Java Power - Indonesia
- Maheswari Brothers Coal Limited - India
- Price Waterhouse Coopers - Russia
- McConnell Dowell - Australia
- India Bulls Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Directorate Of Revenue Intelligence - India
- Orica Australia Pty. Ltd.
- Minerals Council of Australia
- Larsen & Toubro Limited - India
- Altura Mining Limited, Indonesia
- Global Business Power Corporation, Philippines
- GVK Power & Infra Limited - India
- Barasentosa Lestari - Indonesia
- Mercuria Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Binh Thuan Hamico - Vietnam
- Makarim & Taira - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indogreen Group - Indonesia
- Bharathi Cement Corporation - India
- Electricity Generating Authority of Thailand
- Planning Commission, India
- IHS Mccloskey Coal Group - USA
- Karbindo Abesyapradhi - Indoneisa
- Bukit Makmur.PT - Indonesia
- CNBM International Corporation - China
- OPG Power Generation Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Gujarat Sidhee Cement - India
- PTC India Limited - India
- Banpu Public Company Limited - Thailand
- Deloitte Consulting - India
- GAC Shipping (India) Pvt Ltd
- Romanian Commodities Exchange
- The State Trading Corporation of India Ltd
- Meralco Power Generation, Philippines
- Bukit Baiduri Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Straits Asia Resources Limited - Singapore
- Mercator Lines Limited - India
- SN Aboitiz Power Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Rio Tinto Coal - Australia
- Vizag Seaport Private Limited - India
- Ministry of Mines - Canada
- Jorong Barutama Greston.PT - Indonesia
- Pendopo Energi Batubara - Indonesia
- Indo Tambangraya Megah - Indonesia
- Globalindo Alam Lestari - Indonesia
- Agrawal Coal Company - India
- European Bulk Services B.V. - Netherlands
- Baramulti Group, Indonesia
- Toyota Tsusho Corporation, Japan
- Samtan Co., Ltd - South Korea
- Cigading International Bulk Terminal - Indonesia
- TeaM Sual Corporation - Philippines
- Kobexindo Tractors - Indoneisa
- Renaissance Capital - South Africa
- Intertek Mineral Services - Indonesia
- Riau Bara Harum - Indonesia
- Xindia Steels Limited - India
- VISA Power Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Savvy Resources Ltd - HongKong
- Wilmar Investment Holdings
- Semirara Mining and Power Corporation, Philippines
- Edison Trading Spa - Italy
- Africa Commodities Group - South Africa
- Standard Chartered Bank - UAE
- Siam City Cement - Thailand
- Thai Mozambique Logistica
- Latin American Coal - Colombia
- MS Steel International - UAE
- Australian Coal Association
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indika Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Ministry of Finance - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Bulk Trading Sa - Switzerland
- Krishnapatnam Port Company Ltd. - India
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