The Two Countries Dictating Oil Prices In 2020
It’s the end of the year and authorities of various caliber and standing are making oil price forecasts for next year. This wealth of information can be confusing because of its sheer quantity, but here’s a twist: it’s enough to focus on trends in just two countries to catch a glimpse of the immediate future of oil. The two countries, of course, are China and India. They are among the world’s top oil consumers, together accounting for almost a fifth of global oil consumption, as Reuters’ John Kemp noted in a recent column that tackled the issue of oil price forecast complexity. According to Kemp, it’s worth keeping tabs on the world’s ten largest consumers of the most traded commodity, since they account for over 50 percent of global consumption and demand growth, respectively. However, China and India have been consistently trumping the United States in importance when it comes to oil price trends in recent years. The reason for this is that demand for oil has been growing a lot faster in both China and India. In China, oil demand has been growing at an average annual rate of 5.5 percent, according to BP data cited by Kemp. In India, it has been growing by some 5.1 percent since 2008. Meanwhile, U.S. oil demand has only been climbing by 0.5 percent over the last decade. There is also another reason China and India are the countries to watch for those who want to know where oil prices are going at any particular point in time. Both countries are overwhelmingly reliant on imported oil. In China, the percentage of imported oil in its total consumption is almost 70 percent. In India, this percentage is even higher, at more than 80 percent. China’s daily consumption of oil averaged 13.5 million bpd in 2018. India’s stood at 5.1 million bpd. No wonder then, that any economic news from China and, to a lesser extent, India, moves prices as soon as it is released. It would be going too far to say that China and India are the only oil consumers that matter as far as price forecasts are concerned. The United States, despite its modest demand growth, is still the world’s largest oil consumer, guzzling around 20 million barrels of crude daily. It is this size of consumption that makes the Energy Information Administration’s weekly petroleum status report so popular among oil traders, despite the fact it is based on estimates rather than on hard data—and the figures are often revised later, when the hard data from the oil companies comes in. What’s more interesting, however, is that nobody seems to be paying attention to U.S. oil imports. As per the latest EIA report, the U.S. imported 6.9 million bpd in the first week of December. This is more than a quarter of domestic consumption and also more than India’s total consumption. Yet, U.S. oil import numbers are not a popular gauge for oil prices. The reason is most likely the demand growth trend, unlike developments in China and India. Still, despite its somewhat declining importance for prices as a consumer, the U.S. has become a factor to reckon with on the oil supply side. In just a few years the world’s top consumer also became one of the world’s top producers. The shale revolution has made the U.S. a lot more self-sufficient in its energy needs and turned it into a direct challenger to the oil market dominance—especially in Asia—of partner Saudi Arabia. So, in supply, one has to watch the U.S., OPEC, and Russia. In demand, however, it is enough to keep tabs on China and India. Anything that happens in those two economies immediately affects oil prices regardless of anything else that happens in the meantime. Just look at all the news coverage citing the U.S.-China trade war as the main factor for oil price depression. The depression persists despite OPEC+ agreeing to cut deeper. That should say enough about what moves oil markets.
Reliance unit signs binding deal with Brookfield for Rs 252.15 billion investment
Reliance Industrial Investments and Holdings Ltd (RIIHL), a wholly-owned subsidiary of Reliance Industries Ltd, has signed binding agreements with Canadian asset manager Brookfield Infrastructure Partners for an investment of Rs 252.15 billion. The companies had announced the deal earlier on July 19, 2019. Brookfield and its institutional partners will invest in the units to be issued by Tower Infrastructure Trust. After the closure of the deal, the trust will own the entire equity capital of Reliance Jio Infratel Pvt Ltd (RJIPL), RIL said in a regulatory filing. “We are pleased to enter into this long and strategic relationship with Brookfield, which is one of the largest and most respected managers of infrastructure assets globally. We are confident of Brookfield’s abilities to manage this large portfolio of high-quality infrastructure assets and further enhancing value creation opportunities,” RIL Chairman and Managing Director Mukesh D Ambani said. “This transaction demonstrates the belief of global investors in the potential of India’s digital opportunity,” he added. RJIPL has a portfolio of about 1,30,000 communication towers that forms the infrastructure backbone of Reliance Jio Infocomm’s (RJio) telecommunication network. It plans to increase the total number of towers to about 1,75,000. RJio is an anchor tenant of the tower portfolio under a 30-year Master Services Agreement. The deal is subject to regulatory approvals, which are expected shortly, RIL said. In July, Brookfield agreed to invest Rs 252.15 billion to take control of Mukesh Ambani-led RJio’s tower infrastructure, making it the largest foreign investment in the Indian infrastructure space. RJio’s tower assets were transferred to a special purpose vehicle — Reliance Jio Infratel Pvt Ltd (RJIPL).
BP encounters gas in drilling offshore Mauritania, Senegal
BP on Monday said a three-well drilling program offshore Mauritania and Senegal encountered gas in “high quality”, bolstering its confidence in gas resources in the region. The oil and gas major said the three appraisal wells drilled this year, GTA-1, Yakaar-2 and Orca-1, encountered 160 meters of net pay, a measure of a reservoir’s thickness. In November, the Orca-1 well offshore Mauritania, partly owned with Kosmos Energy and Societe Mauritanienne Des Hydrocarbures et de Patrimoine Minier, was further deepened and encountered more gas. “We have identified a large prospective area with considerable resource potential in Southern Mauritania. We will now conduct further appraisal drilling to help inform future development decisions,” said Howard Leach, BP’s head of exploration.
Reliance Industries topples IOC to become India’s largest company
Boosted by its consumer-facing businesses like organised retail and telecom, Reliance Industries ended state-owned Indian Oil Corporation’s (IOC) 10-year reign as India’s largest company, topping the Fortune India 500 list. With a revenue of Rs 5.81 lakh crore in 2018-19, the Mukesh Ambani-led conglomerate also became the first privately-held and the only other company to become India’s largest corporation apart from IOC for the first time in 10 years, Fortune India said. State-owned Oil and Natural Gas Corporation (ONGC) was ranked third, same as in 2018. It was followed by State Bank of India, Tata Motors and Bharat Petroleum Corporation Ltd (BPCL) — all with no changes in their ranking between 2018 and 2019. The list does not take into account subsidiaries of companies and so ONGC’s ranking does not reflect those from its recently acquired Hindustan Petroleum Corp Ltd (HPCL) as well as ONGC Videsh Ltd. Rajesh Exports climbed one position to be ranked 7th on the 2019 list and so did Tata Steel, Coal India, Tata Consultancy Services and Larsen & Toubro that were ranked 8th, 9th, 10th and 11th, respectively. ICICI Bank rose two positions to be ranked 12th, followed by Hindalco Industries and HDFC Bank. Vedanta Ltd slipped three positions to be ranked 18th on the 2019 list. Fortune India said RIL posted a 41.5 per cent rise in its revenue in the financial year 2018-19, which was 8.4 per cent more than IOC, the second-largest company on the list. RIL’s 2018-19 revenue stood at Rs 5.81 lakh crore, while IOC posted a growth of 26.6 per cent in sales to Rs 5.36 lakh crore in the same year. RIL’s profit for 2018-19 was also more than double that of IOC, at Rs 39,588 crore. “Over the past 10 years, the oil-to-retail conglomerate’s profit has been an average three times higher than that of IOC. The highest it touched compared to IOC was up to 4.8 times, in FY15 when RIL’s profit was Rs 23,566 crore and the public sector major’s stood at Rs 4,912 crore,” it said. Overall, the revenue of the Fortune India 500 companies in the 2019 list grew 9.53 per cent, while profit rose 11.8 per cent. A total of 57 companies dropped off the list for reasons including consolidation within the public sector banks, public sector undertakings, as well as the private sector. This year, the total loss posted by the 500 companies also came down, with 65 companies posting a cumulative loss of Rs 1.67 lakh crore, compared to last year’s Rs 2 lakh crore racked up by 79 companies, Fortune India said. Public and private sector banks faced diverse fortunes in 2019. As many as 14 of 22 public sector banks reported cumulative losses of Rs 74,253 crore. In contrast, just two private sector banks posted losses (IDFC First Bank, at Rs 1,907.9 crore; and Lakshmi Vilas Bank, at Rs 894.1 crore). The total profit of 24 of private sector banks (including foreign banks and cooperative banks) was Rs 60,747 crore, a 6.16 per cent increase over 2017-18. Fortune India said the oil and gas sector (with eight companies) accounted for 22.3 per cent of the total revenue of the 500 companies, followed by banking with 15.88 per cent of the total. The banking sector, with 48 companies, is also the biggest contributor by way of the number of companies on the list. Oil and gas, however, has the highest share of profit in the 500, at 23.44 per cent.
Vedanta interested in BPCL, evaluation on: Anil Agarwal
Vedanta Resources Ltd is evaluating an investment in Bharat Petroleum Corporation which has been put on the block by the government as part of its privatisation drive. “We are looking (at BPCL). Evaluation is going on,” Anil Agarwal, chairman of Vedanta Resources, said while speaking to ET Now at the Times Network India Economic Conclave 2019 here on Monday. “One by one privatising these companies will take 10 years. It is better to (do it in) one-shot. The government has no business to be in business,” Agarwal said. Vouching for the privatisation of public sector companies, he said that the public companies acquired by his group have fared better under private ownership. “I have acquired four government companies. All four have become three times more (in terms of) production and have shown tremendous capability,” said Agarwal. Drawing attention to the difference that private ownerships can make, he said these companies are still being run by the public sector employees. Agarwal’s Vedanta Resources has acquired Bharat Aluminium Company (Balco), Hindustan Zinc (HZL), and Sesa Goa, among other companies over the years. The “Babu-raj” (bureaucrat-raj) should end, Agarwal said. “The job of bureaucrats is to make policies and not execute them. They shouldn’t be deciding where a plane (Air India) goes to or how aluminium or oil is extracted,” Agarwal said. And now is the time that the government can change these policies, given its strong mandate, he said. “This government has the ability to take strong decisions. If we can’t advance now, we will never advance,” said Agarwal. India has some of the best natural resources reserves and yet the country spends about $500 billion to import resources, he said. Importing natural resources results in loss of not just foreign exchange reserves but also a loss of jobs. If we can make all our natural resources companies private, we could curb these imports, said Agarwal, adding that even if the government’s shareholding goes down to 50%, the management and the chief executive will become independent and the markets will appreciate that.