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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, 23 February 24
STRONG OUTLOOK FOR THE TANKER MARKET IN 2024 AND BEYOND - DNV
Several factors have aligned over the past two years to create a robust and profitable market for tanker owners, which is expected to drive newbuil ...
Friday, 23 February 24
AUSTRALIAN COAL FLOWS TO ASIA HOVER ABOVE LAST YEAR’S VOLUME TONNES - SIGNAL GROUP
In the final days of February, the dry bulk freight market appeared to maintain a relatively stable momentum, particularly evident in the large ves ...
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Thursday, 22 February 24
BIMCO PUBLISHES SHIP FINANCING FORMS TO ENSURE UNINTERRUPTED USE OF SHIPS
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Monday, 19 February 24
METALS INVESTMENT: THE DARKEST HOUR IS JUST BEFORE THE DAWN - WOOD MACKENZIE
Things often seem at their worst just before they get better. In terms of meeting our net zero 2050 scenario, we’ve reached a watershed momen ...
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Showing 31 to 35 news of total 6871 |
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- Toyota Tsusho Corporation, Japan
- The University of Queensland
- Star Paper Mills Limited - India
- Standard Chartered Bank - UAE
- Straits Asia Resources Limited - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Kobexindo Tractors - Indoneisa
- GVK Power & Infra Limited - India
- Altura Mining Limited, Indonesia
- Indika Energy - Indonesia
- Orica Mining Services - Indonesia
- Latin American Coal - Colombia
- Malabar Cements Ltd - India
- Mercator Lines Limited - India
- Rio Tinto Coal - Australia
- Indian Energy Exchange, India
- London Commodity Brokers - England
- IHS Mccloskey Coal Group - USA
- Asmin Koalindo Tuhup - Indonesia
- Ind-Barath Power Infra Limited - India
- Sical Logistics Limited - India
- Electricity Generating Authority of Thailand
- Meenaskhi Energy Private Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- PTC India Limited - India
- Videocon Industries ltd - India
- Parliament of New Zealand
- Maheswari Brothers Coal Limited - India
- Ceylon Electricity Board - Sri Lanka
- Krishnapatnam Port Company Ltd. - India
- Vedanta Resources Plc - India
- Dalmia Cement Bharat India
- Simpson Spence & Young - Indonesia
- Essar Steel Hazira Ltd - India
- Bulk Trading Sa - Switzerland
- McConnell Dowell - Australia
- Bukit Makmur.PT - Indonesia
- Australian Commodity Traders Exchange
- Sakthi Sugars Limited - India
- Merrill Lynch Commodities Europe
- Agrawal Coal Company - India
- Siam City Cement PLC, Thailand
- India Bulls Power Limited - India
- Holcim Trading Pte Ltd - Singapore
- GN Power Mariveles Coal Plant, Philippines
- LBH Netherlands Bv - Netherlands
- Antam Resourcindo - Indonesia
- Independent Power Producers Association of India
- VISA Power Limited - India
- Energy Link Ltd, New Zealand
- Wilmar Investment Holdings
- Coal and Oil Company - UAE
- New Zealand Coal & Carbon
- GMR Energy Limited - India
- Posco Energy - South Korea
- Therma Luzon, Inc, Philippines
- Jindal Steel & Power Ltd - India
- Lanco Infratech Ltd - India
- Directorate Of Revenue Intelligence - India
- Timah Investasi Mineral - Indoneisa
- Edison Trading Spa - Italy
- Globalindo Alam Lestari - Indonesia
- Mintek Dendrill Indonesia
- South Luzon Thermal Energy Corporation
- Singapore Mercantile Exchange
- Sojitz Corporation - Japan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Thai Mozambique Logistica
- Offshore Bulk Terminal Pte Ltd, Singapore
- Georgia Ports Authority, United States
- Planning Commission, India
- Vijayanagar Sugar Pvt Ltd - India
- Eastern Energy - Thailand
- San Jose City I Power Corp, Philippines
- SMC Global Power, Philippines
- Africa Commodities Group - South Africa
- Gujarat Electricity Regulatory Commission - India
- Chettinad Cement Corporation Ltd - India
- Bayan Resources Tbk. - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Romanian Commodities Exchange
- Siam City Cement - Thailand
- Orica Australia Pty. Ltd.
- Goldman Sachs - Singapore
- Bukit Baiduri Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- Binh Thuan Hamico - Vietnam
- AsiaOL BioFuels Corp., Philippines
- Commonwealth Bank - Australia
- Economic Council, Georgia
- Gujarat Sidhee Cement - India
- Bangladesh Power Developement Board
- Kumho Petrochemical, South Korea
- Mercuria Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Mjunction Services Limited - India
- Aboitiz Power Corporation - Philippines
- Renaissance Capital - South Africa
- PetroVietnam Power Coal Import and Supply Company
- Bhushan Steel Limited - India
- Makarim & Taira - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Coastal Gujarat Power Limited - India
- Riau Bara Harum - Indonesia
- SN Aboitiz Power Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- Samtan Co., Ltd - South Korea
- Bank of Tokyo Mitsubishi UFJ Ltd
- Alfred C Toepfer International GmbH - Germany
- Semirara Mining Corp, Philippines
- IEA Clean Coal Centre - UK
- Salva Resources Pvt Ltd - India
- MS Steel International - UAE
- Thiess Contractors Indonesia
- Kartika Selabumi Mining - Indonesia
- Sinarmas Energy and Mining - Indonesia
- International Coal Ventures Pvt Ltd - India
- Minerals Council of Australia
- SMG Consultants - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Medco Energi Mining Internasional
- Heidelberg Cement - Germany
- Kaltim Prima Coal - Indonesia
- Carbofer General Trading SA - India
- Sindya Power Generating Company Private Ltd
- Miang Besar Coal Terminal - Indonesia
- Ministry of Finance - Indonesia
- Petron Corporation, Philippines
- Electricity Authority, New Zealand
- Formosa Plastics Group - Taiwan
- Baramulti Group, Indonesia
- Central Java Power - Indonesia
- European Bulk Services B.V. - Netherlands
- PNOC Exploration Corporation - Philippines
- Ministry of Transport, Egypt
- Oldendorff Carriers - Singapore
- Global Green Power PLC Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Karaikal Port Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- ICICI Bank Limited - India
- Metalloyd Limited - United Kingdom
- Attock Cement Pakistan Limited
- Savvy Resources Ltd - HongKong
- Semirara Mining and Power Corporation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Wood Mackenzie - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bharathi Cement Corporation - India
- Chamber of Mines of South Africa
- Leighton Contractors Pty Ltd - Australia
- Madhucon Powers Ltd - India
- Central Electricity Authority - India
- Anglo American - United Kingdom
- Cement Manufacturers Association - India
- Port Waratah Coal Services - Australia
- Meralco Power Generation, Philippines
- Coalindo Energy - Indonesia
- The State Trading Corporation of India Ltd
- Larsen & Toubro Limited - India
- Barasentosa Lestari - Indonesia
- Marubeni Corporation - India
- Energy Development Corp, Philippines
- Borneo Indobara - Indonesia
- Bhatia International Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Eastern Coal Council - USA
- Cigading International Bulk Terminal - Indonesia
- Ministry of Mines - Canada
- Australian Coal Association
- Deloitte Consulting - India
- TeaM Sual Corporation - Philippines
- Uttam Galva Steels Limited - India
- Jaiprakash Power Ventures ltd
- Xindia Steels Limited - India
- Vizag Seaport Private Limited - India
- CNBM International Corporation - China
- Ambuja Cements Ltd - India
- Grasim Industreis Ltd - India
- Indo Tambangraya Megah - Indonesia
- OPG Power Generation Pvt Ltd - India
- PowerSource Philippines DevCo
- Parry Sugars Refinery, India
- Price Waterhouse Coopers - Russia
- Maharashtra Electricity Regulatory Commission - India
- Bahari Cakrawala Sebuku - Indonesia
- Banpu Public Company Limited - Thailand
- Tata Chemicals Ltd - India
- Tamil Nadu electricity Board
- Jorong Barutama Greston.PT - Indonesia
- Global Business Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Intertek Mineral Services - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Trasteel International SA, Italy
- Aditya Birla Group - India
- Global Coal Blending Company Limited - Australia
- Indian Oil Corporation Limited
- Sree Jayajothi Cements Limited - India
- ASAPP Information Group - India
- Interocean Group of Companies - India
- Power Finance Corporation Ltd., India
- Neyveli Lignite Corporation Ltd, - India
- GAC Shipping (India) Pvt Ltd
- White Energy Company Limited
- The Treasury - Australian Government
- Indogreen Group - Indonesia
- CIMB Investment Bank - Malaysia
- Iligan Light & Power Inc, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Indonesian Coal Mining Association
- Directorate General of MIneral and Coal - Indonesia
- Bhoruka Overseas - Indonesia
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