Global oil consumption stagnates leaving prices under pressure
Global oil consumption has stalled since the middle of 2018, making lower oil prices inevitable despite the best efforts of Saudi Arabia and its allies to reduce production. The world’s top 18 oil-consuming countries, each using more than 1 million barrels per day (bpd) of petroleum products, account for almost two-thirds of world consumption, so they make a useful proxy for global demand. Consumption in the top 18 rose by just 0.7% in the three months to March compared with the same period a year earlier, figures from the Joint Organisations Data Initiative show. Most of these countries report consumption figures with a delay of two months, with data now available through May, but China, India, and Thailand report more slowly. If late reporters are excluded, consumption in the top 15, accounting for 45% of world consumption, fell 2.2% in the three months to May compared with 2018, the fastest decline since the recession of 2008/09. Since 2006, consumption growth in the top 15 has been a reliable leading indicator for the top 18 and demand more generally, which is not surprising given the interconnectedness of the global economy. Decelerating oil consumption growth since the second and third quarter of 2018 has corresponded closely with the slowdown in global manufacturing activity and freight movements. Given the slackening in oil consumption, a sharp fall in prices was inevitable, notwithstanding action by Saudi Arabia and its allies in the expanded OPEC+ group of oil exporters. Previous decelerations in 2006/07, 2008/09, 2011/12, and 2014/15 were all accompanied by sharp price falls to force consumption and production back to balance. In 2019, production restraint has averted an even sharper fall in prices but could not avert the need for lower prices to help buy back some of the lost consumption growth. Prices will start to rise sustainably if, and only if, the global economy avoids recession and consumption growth starts to accelerate again.
Thrust on CNG leads to 50% growth in fuel’s demand
Demand for compressed natural gas (CNG) has expanded by 50% in four years due to a combination of the Modi government’s thrust on popularising the less-polluting fuel, expansion of filling stations, lower gas prices and multiple CNG vehicle launches by automakers. CNG sales rose to 3,076 thousand metric tonnes in 2018-19 from 2,037 thousand metric tonnes in 2014-15. Consumption of petrol and diesel, which have a much larger market, rose 48% and 20%, respectively, in the same period. “The government’s strong commitment to the natural gas sector has been the biggest demand driver. This has helped expand fuel supply and boosted automakers’ confidence in CNG vehicles,” said ES Ranganathan, managing director of Indraprastha Gas Ltd (IGL), a gas utility active in Delhi and its suburbs. “Automakers have launched CNG variants of several passenger and commercial models in the past few years, increasing vehicle sales and fuel demand.” Ford, Honda, Mahindra and Eicher have in recent years launched CNG variants of passenger cars and commercial trucks joining Maruti and Hyundai, which had mostly dominated the factory-fitted CNG vehicles category for years. As automakers spent more resources on manufacturing CNG vehicles, they also pushed their dealerships to drive up sales. The share of factory-fitted CNG vehicles has rapidly expanded in the past few years. Previously, vehicle owners would mostly retrofit their cars after their warranties had expired. Unavailability of land for setting up filling stations had hampered expansion for years but oil minister Dharmendra Pradhan prompted state-run oil companies to provide space for CNG dispensers at their petrol pumps, helping boost the number of CNG stations by 71% in 4 years to 1,730.
Reliance topples Indian Oil to become highest-ranked Indian firm on Fortune Global 500 list
Mukesh Ambani-led Reliance Industries has jumped 42 places to become the highest-ranking Indian firm on the Fortune Global 500 list. State-owned Indian Oil Corp (IOC) had been the top-ranked Indian company on the list and was first on the Fortune India 500 list which was started in 2010. “This year, ranked 106, Reliance Industries (RIL) has replaced IOC (117) as the top-ranked Indian company on the Global 500 list,” Fortune said. RIL’s revenue soared 32.1 percent from $62.3 billion in 2018 to $82.3 billion in 2019. In comparison, IOC clocked a 17.7 percent growth in revenue from $65.9 billion to $77.6 billion. “Over the past 10 years, RIL’s revenue rose at a compounded annual growth rate of 7.2 percent from $41.1 billion in 2010, while that of IOC rose at 3.64 percent from $54.3 billion in 2010,” it said. Besides, RIL and IOC, Oil & Natural Gas Corp (ONGC), State Bank of India (SBI), Tata Motors, Bharat Petroleum Petroleum Corp Ltd (BPCL) and Rajesh Exports are the other Indian companies to feature on the list. ONGC has moved up 37 places to 160th rank on the global list, while SBI lost 20 places to 236th rank. Tata Motors slipped 33 places to 265th position. BPCL rose 39 places to rank 275th spot, while Rajesh Exports slipped 90 places to rank 495th. US giant Walmart continues to top the Fortune 500 list followed by Chinese state-owned oil and gas company Sinopec Group, which moved one rank up. Dutch company Royal Dutch Shell was ranked third followed by China National Petroleum and State Grid. Saudi oil giant Saudi Aramco appeared for the first time in top 10 at sixth position, while BP, Exxon Mobil, Volkswagen, and Toyota Motor are ranked 7th, 8th, 9th and 10th position respectively. “The journey of RIL, which marks its 16th year on the Global 500 list this year, to the top position has been interesting. The average difference of its revenues with that of IOC was $9.4 billion in the nine years from 2010 to 2018. The difference was as high as $13.2 billion in 2010. The gap started to narrow after 2016 when RIL’s revenue was $11.3 billion lesser than IOC. The difference further fell to $6.6 billion and $3.6 billion in 2017 and 2018, respectively, and RIL surpassed IOC by $4.7 billion in 2019,” Fortune said. Over the 10-year-period, IOC saw its highest revenue at $86 billion in 2012, which is $9.8 billion higher than its revenue in 2019. Interestingly, 2012 also saw RIL registering its second-highest revenue of $76.1 billion. The absolute increase in RIL’s revenue between 2012 and 2019 is $8.2 billion. At the 2012 peak, IOC and RIL were ranked at 83 and 99 positions, respectively, on the Global 500 list. In 2018, RIL was ranked 148th and IOC was at 137th place, it added.
ADNOC and Pertamina sign oil and gas development agreement
The Abu Dhabi National Oil Company (ADNOC) signed a an agreement with state-owned Indonesian energy company PT Pertamina (Persero) on Wednesday for oil and gas collaboration in both countries and globally, ADNOC said in a statement. The comprehensive strategic framework (CSF) agreement was signed on the sidelines of an official visit to Indonesia by Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed. The scope of projects under consideration includes participation in the United Arab Emirates’ upstream oil and gas sector as well as refining and petrochemicals, LNG, LPG, aviation fuel and fuel retail opportunities in Indonesia. The two parties will also explore collaboration across transportation, trading and storage in the UAE.
Petrobras to privatise Brazil’s top gas seller in $2 bn share sale
Brazilian state-run oil company Petroleo Brasileiro SA is set to relinquish control of the country’s biggest fuel distributor in a share offering due to be priced late on Tuesday, pushing ahead with a privatization drive under new Chief Executive Roberto Castello Branco. Each of Branco’s three predecessors discussed privatizing Petrobras Distribuidora SA. The share offering of the gas station chain underscores the new government’s commitment to an array of public asset sales in industries ranging from energy to finance. Petrobras, as the company is known, plans to sell 25% of shares in Petrobras Distribuidora, which would bring in roughly 7.57 billion reais ($2 billion) at Tuesday’s closing price. Shares rose 2% on Tuesday to 26 reais, ahead of the offering pricing. The stake sale could increase to 33.75% via overallotment provisions, raising up to 10.2 billion reais ($2.7 billion). Supplementary and additional allotments will be allocated by Aug. 28, according to the prospectus. The fuel distributor, also known as BR Distribuidora, owns 17.7% of all gas stations in Brazil, according to oil regulatory agency ANP data. Its closest rival is Ipiranga, controlled by Ultrapar Participacoes SA, with 14% of gas stations. The sale of state-owned assets is expected to drive mergers, acquisitions and share offerings in Brazil in the second half of the year, bankers and investors said, after a slower-than-expected first half. Petrobras management, appointed by President Jair Bolsonaro in January, is aggressively exiting downstream and midstream businesses to sharpen its focus on offshore oil exploration and production. Analysts at UBS AG and Banco Bradesco SA have “buy” and “outperform” ratings on Petrobras Distribuidora, with price targets of 30 and 35 reais, respectively. Both say privatization will free the firm of some onerous legal obligations. “Personnel costs should fall after privatization, as (the company) will be free to follow its own hiring process rather than public-tender hiring and the dismissal process will be significantly less complex than the current one,” wrote UBS analysts led by Luiz Carvalho. The offering will be led by the investment banking units of JPMorgan Chase & Co, Citigroup Inc, Itau Unibanco Holding SA, Bank of America Corp, Credit Suisse Group AG and Banco Santander Brasil SA.