Wednesday, 15 April 2015

RIP Oil Price??

The Titanic might have sunk forever....

First a look at the long term oil price trends:

The THIN RED LINE DROPPING on the following graph is the 600 week (11 year) moving average of $BRENT.


The shorter moving averages (listed below and shown on graph) are supporting its downward movement and seem to be all set to cut it from above, i.e. the MULTIPLE DEATH CROSS seems to be on the cards...

1) The 8 year (416 week) moving average (GREEN LINE).

2) The 4 year (208 week) moving average (BLUE LINE).

RIP oil price....??

GOLD LINE = $BRENT CRUDE, BLACK LINE = $INDU (Dow Jones Industrial Index)




Oil prices are crashing but Saudi Arabia is in no mood to cut production.

Some interesting statements by the Saudi Oil Minister:

1. "I Don't Care If Prices Crash To $20 - — We're Not Budging." - Ali al-Naimi, Saudi Oil Minister.

2. "We’ll never cut production despite plunging prices." - Saudi Oil Minister.

Very strong statements...

One does wonder why Saudi Arabia does not want to cut oil production, why is it interested in keeping the price down?

One reason would be the following...oil war with the U.S.A.

"The sharp oil price fall from $100 last summer to below $80 in just three months will bankrupt small US oil producers who need at least $80 per barrel to be profitable. It's as shame because the dream of US energy independence may never realize"...Mar 31, 2015..Oil Price

The long term reason however, could lie in this article from Cityam..
© 2015 City A.M. Limited.

"Not only does Saudi Arabia possess perhaps a fifth of the world’s known reserves, but it can produce oil far more cheaply than its competitors.

Accurate figures about costs are hard to pin down. But because Saudi oil lies close to the surface and the size of the country’s fields enables big economies of scale, it is generally accepted that its oil can be produced for less than $10 a barrel. By comparison, it costs upwards of $40 to extract every barrel of North Sea oil. According to Oil & Gas UK, one third of the fields in UK waters are unprofitable even at the present price of around $60 per barrel.

So oil at $50 a barrel still allows Saudi Arabia to make plenty of money even if the government budget is based on a much higher price. But huge reserves, as the Kingdom has long realised, are of little use if no one wants to buy what lies under your sand.

It was Saudi Arabia’s long-serving energy minister Sheikh Yamani who, predicting demand for oil would run out long before reserves were exhausted, memorably remarked that “the Stone Age did not end for lack of stone”. Change was driven by the development of bronze, a much better material.

The days when oil will be replaced by a much better energy source are coming closer. As early as 2030, it is likely that no one will be building new power stations which use fossil fuels. By 2040, electric cars may have replaced those driven by petrol or diesel. By 2060, even shipping might be powered by solar energy.

The innovation and scale needed to make these predictions real is gathering pace. Solar panel prices, driven by production in China, have fallen by 75 per cent in the last five years. The total installed costs of large-scale solar plants are down as much as 65 per cent since 2010. The cost of onshore wind – the cheapest form of renewable power – has also fallen sharply.

Importantly, there is also rapid progress in the development of batteries to store power cheaply and efficiently – the Holy Grail for the renewable industry. By overcoming the problem of night time or calm days for solar or wind power, we can avoid the need for back-up gas or coal-fuelled plants."

"There are some, of course, who have made a heavy bet that the fall in the price of oil will soon be reversed. But it is not something the oil-producing countries, frantically diversifying their economies or buying up assets to provide future revenue streams, believe. Nor the big oil companies themselves, who are busy cutting back on exploration and slashing investment."

Author Guy Hands is chairman of Terra Firma Capital Partners.

Is clean energy a potent threat to the market of oil?

Oil is used not only as fuel for various applications including power plants, it also has many useful byproducts and derivatives, like alkenes(olefins), lubricants, wax, sulfuric acid, tar, asphalt, paraffin wax, aromatic petrochemicals and more, which are used in a wide range of industrial processes as catalysts, raw material, lubricants and in other functions. A very wide range of applications.

A look at the power scenario:

Clean energy is undoubtedly becoming more and more potent in the energy race...

....expressed quite well in the following Bloomberg graphic.

© Bloomberg. All rights reserved.

The race for renewable energy has passed a turning point. The world is now adding more capacity for renewable power each year than coal, natural gas, and oil combined. And there's no going back.

The shift occurred in 2013, when the world added 143 gigawatts of renewable electricity capacity, compared with 141 gigawatts in new plants that burn fossil fuels, according to an analysis presented Tuesday at the Bloomberg New Energy Finance annual summit in New York. The shift will continue to accelerate, and by 2030 more than four times as much renewable capacity will be added.

Power generation capacity additions (GW)

Image © Bloomberg New Energy Finance.

But like VOX points out, there are some problems with this graph, as explained below:

© 2015 Vox Media.

Firstly, 1 GW of solar [installed capacity] is not equal to 1 GW of coal [installed capacity].

The second criticism of the chart above is that it only shows electricity capacity additions. "Capacity" is defined as the maximum output a power plant can produce under specific conditions. It is not same as how much electricity a power plant will actually generate in its lifetime.

Here's a way to illustrate the difference: coal plants can burn coal pretty much around the clock. So, over the long run, a coal plant will typically produce around 50 to 80 percent of its maximum output. Solar photovoltaic panels, by contrast, usually only work when the sun is shining. In the long run, they might produce just 20 percent of their maximum output. These percentages are known as "capacity factors."

VOX also points out that currently only a tiny fraction of the entire energy burden is being shouldered by renewables, based on 2013 data.



AND DEMAND FOR OIL IS INCREASING...



SOME FORECASTS ON OIL PRICE
© knoema 2015

Sorry OECD, you are way off...








END NOTE:


via Ibntimes: May 1, 2015

"However, many analysts warn that investors should not be misled by the current rally in oil prices, as higher prices will attract the US oil drillers to resume production.

"We believe that the latest price surge is premature and excessive – nonetheless, the impetus which is driving it is relatively strong, meaning that a further albeit speculative short-term price rise is probable," said Commerzbank Corporates & Markets in a note.


Besides, oil exports from Iran which are expected to hit the already oversupplied market, after a final deal on its nuclear programme in June, are likely to weigh in on the prices in the coming months.

"While deferred well completions have provided near-term relief to the supply glut, they also risk exacerbating the duration of the hangover as producers are likely to bring barrels to market as prices recover," Justin Bouchard, analyst at Desjardins Capital Markets, told Financial Post .



Conclusion:

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