Oil prices drop amid U.S. dollar strength, expectations for supply gains
Oil prices dropped on Friday as a collapse in bond prices led to gains in the U.S. dollar and expectations grew that with oil prices back above pre-pandemic levels, more supply is likely to return to the market. U.S. West Texas Intermediate (WTI) crude futures dropped 72 cents, or 1.1%, to $62.81 a barrel at 0516 GMT, giving up all of Thursday’s gains. Brent crude futures for April, which expires on Friday, fell 63 cents, or 0.9%, to $66.25 a barrel, following a 16 cent loss on Thursday. The more active May contract was down 77 cents, or 1.2%, to $65.34 a barrel. “Crude oil retreated modestly from recent highs amid a ‘risk off’ sentiment as Asia-Pacific equities pulled back broadly following a sour lead from Wall Street,” said Margaret Yang, a strategist at Singapore-based DailyFX. The sell-off in bond markets, leading to a stronger U.S. dollar and rising yields, are weighing on commodities, which are non-yielding, she added. A stronger greenback makes U.S.-dollar priced oil more expensive for those buying crude in other currencies. Despite the drop in prices on Friday, both Brent and WTI are on track for gains of nearly 20% this month, as markets have grappled with supply disruptions in the United States, while optimism has built for demand to improve with vaccine rollouts. Investors are betting that next week’s meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies, together called OPEC+, will result in more supply returning to the market. “The stakes at play this time around are particularly large (for OPEC+) insofar as oil prices have more than recovered to pre-pandemic levels, global inventories are continuing to trend down, and vaccine rollouts are accelerating,” said Lachlan Shaw, National Australia Bank’s head of commodity research. “The market’s probably right to think at this price level and given what the fundamentals are doing, there’ll be more supply coming into the market over time.” U.S. crude prices also face headwinds from the loss of refinery demand after several Gulf Coast facilities were shuttered during the winter storm last week. Capacity of about 4 million barrels per day is still shut and it may take until March 5 for all of the shut capacity to resume, though there is risk of delays, analysts at J.P. Morgan said in a note this week.
Govt gets tax-rich from oil sector, consumers bear brunt
Government is all set to walk away with the highest level of excise duty collection from the petroleum sector this year, even as fuel consumers continue to face persistent increase in petrol and diesel prices that has taken the retail prices to historic high levels across the country. In the nine month period of current fiscal ending December 31, 2020, Centre’s excise duty collections from the petroleum sector has already touched Rs 2,35,811 crore-mark, much more than what it got in the full financial year 2019-20. At this pace, collections may well cross Rs 3 lakh crore for the very first time in FY21. Last fiscal, the Centre received Rs 2,23,057 crore as excise revenue from the petroleum sector. The numbers were even lower at Rs 2,14,369 crore in FY19. Only in FY17, excise collections remained firm at Rs 2,42,691 crore when the government raised excise duty taking advantage of low crude prices. Higher collections as taxes have come at a time when consumers are facing the brunt of rising fuel prices with sharp increase in retail price of petrol and all through 2021. In fact, petrol price has breached the Rs 100 a litre mark in several parts of the country burning a larger hole in consumers’ pocket. “It is the heavy load of taxes that has kept the two auto fuel prices at all-time high levels now with the pandemic-affected revenue stream preventing the government from considering a duty cut. But with global oil prices expected to firm up further, a decision may be needed soon on revision of duties as has been done by a few state governments to tame fuel prices,” said an oil industry expert asking not to be named. Taxes and duties now account for over 60 per cent of the retail price of petrol and over 55 per cent of the retail price of diesel in the capital at current level of pump prices. The taxes component has fallen over the fortnight as the global price of petrol and diesel has also risen in the past few days. Otherwise taxes were well over 70 per cent of the retail price of petrol till last year. What the higher level of taxes means is that the bulk of the retail price a common man pays to get fuel is tax and if the government would not have targeted petrol and diesel to raise revenue every time there is a pressing need for it, the fuel prices in India today would have mirrored retail prices prevailing decades ago (in 2003) and closer to what consumers in oil-rich countries in the Gulf pay. The current state tax (VAT) rate on petrol and diesel has risen to Rs 20.61 and Rs 11.68 per litre, respectively, in Delhi though the state government cut taxes on diesel to bring down the fuel price that had even crossed petrol rates in the national capital. Similarly, the Centre’s decision in May to raise excise duties on petrol and diesel by Rs 10 and Rs 13 per litre, respectively, had taken up the component of this tax on retail prices by Rs 32.90 on petrol and Rs 31.80 per litre on diesel. So the total tax component (Central and state in Delhi) is Rs 53.51 a litre on petrol and Rs 43.48 on diesel. Compare this with the base price of the two products today and the tax load becomes clearly visible. The base price of petrol currently is a mere Rs 31.82 a litre and diesel is just Rs 33.46 a litre. The base price was much lower till late last year meaning that the two products are being heavily milked for revenue at the cost of consumers who are at the receiving end of the pandemic bearing higher prices for both food and fuel. Together with the Central and state taxes, freight, and dealers’ commission, petrol on Wednesday was priced at Rs 90.93 a litre in Delhi while diesel’s current selling price stands at Rs 81.32 a litre. “Auto fuels comprise 20-30 per cent of revenue of state governments while it forms a significant portion of excise revenue for states. As the fuel is still out of GST, raising duties is easier for both the Centre and states that target the product to raise revenue whenever there is an emergency. But a high set price of fuel also adds inflationary pressure on the economy that would just not be right at this juncture when the country is fighting the coronavirus outbreak,” said an oil sector analyst not willing to be named. According to analysts Rs 5 per litre increase in retail price of petrol and diesel could add up to 0.5 per cent to retail inflation that stood at 4.06 per cent in January. After maintaining low levels, global oil prices have now risen on supply curbs and on expectation of a demand pick as vaccination picks up pace globally. While oil companies had kept retail prices from falling consistently in August, September and October even though global oil prices remained soft, they have regularly raised the retail prices since then to bring the pump prices closer to all-time high levels now.
Global LNG demand expected to almost double by 2040 -Shell
Global liquefied natural gas (LNG) demand is expected to almost double to 700 million tonnes by 2040, Royal Dutch Shell said in its annual LNG market outlook. Demand was 360 million tonnes last year, up slightly from 2019’s 358 million tonnes, despite volatility caused by lockdowns during the coronavirus pandemic. Global LNG prices hit a record low early in 2020 but ended the year at a six-year high as demand in parts of Asia recovered and winter buying increased amid tightened supply, Shell said. Asia is expected to drive nearly 75% of LNG demand growth to 2040 as domestic gas production declines and LNG substitutes higher emission energy sources. Last year, China and India led the recovery in demand for LNG following the outbreak of the pandemic. China increased its LNG imports by 7 million tonnes to 67 million tonnes in 2020, an 11% increase from the year before. China’s target to become carbon neutral by 2060 is expected to continue driving up its LNG demand. India also increased imports by 11% in 2020 as it took advantage of lower-priced LNG to boost its domestic gas production. A gap between supply and demand is expected to open in the middle of this decade with less new production coming on stream than previously projected, the outlook showed. Only 3 million tonnes of new LNG production capacity was announced in 2020, down from an expected 60 million tonnes.
India and China led the recovery in LNG demand post pandemic: Shell
India and China led the recovery in Liquified Natural Gas (LNG) demand following the outbreak of the Covid-19 pandemic, according to Royal Dutch Shell’s annual LNG Outlook published today. The company said in a statement that India increased imports by 11 per cent in 2020 as it took advantage of lower-priced LNG to supplement its domestic gas production. On the other hand China increased its LNG imports by 7 million tonnes to 67 million tonnes, an 11 per cent increase of the year, it added. Shell in its report also found that Global LNG trade increased to 360 million tonnes in 2020 despite the unprecedented volatility caused by the Covid-19 pandemic which resulted in lockdowns all over the world. “LNG provided flexible energy which the world needed during the COVID-19 pandemic, demonstrating its resilience and ability to power people’s lives in these unprecedented times,” said Maarten Wetselaar, Integrated Gas, Renewables and Energy Solutions Director at Shell. It noted that the increase in volume reflects the resilience and flexibility of the global LNG market in 2020, a year which saw losses to global GDP of several trillion dollars as economies struggled to contain the Covid-19 outbreak. Demand in 2019 was 358 million tonnes. “Overall, global LNG demand is estimated to hit 700 million tonnes by 2040. Asia is expected to drive nearly 75 percent of this growth as domestic gas production declines and LNG substitutes higher emission energy sources,” the company added. The company reiterated that the demand for LNG is only going to increase henceforth as world over, economies are switching to carbon neutrality in the next few years. China’s announcement of a target to become carbon neutral by 2060 is expected to continue driving up the LNG demand. Similarly, two other major Asian LNG importing countries- Japan and South Korea also announced net zero emissions targets in 2020. “As demand grows, a supply demand-gap is expected to open in the middle of the current decade with less new production coming on stream than previously projected,” it added. As per the estimates, more than half of the future LNG demand will come from countries with net zero emission targets.
2020 LNG demand holds steady despite COVID-19, set for growth as global economies recover
Global Liquified Natural Gas (LNG) trade increased to 360 million tonne in 2020 despite the unprecedented volatility caused by the Covid-19 pandemic which resulted in lockdowns all over the world, according to Royal Dutch Shell’s annual LNG Outlook published today. The company said the increase in volume reflects the resilience and flexibility of the global LNG market in 2020, a year that saw losses to global GDP of several trillion dollars as economies struggled to contain the Covid-19 outbreak. Demand in 2019 was 358 million tonnes. “As the cleanest-burning fossil fuel, natural gas and LNG have a central role to play in delivering the energy the world needs and helping power progress towards these targets,” said Maarten Wetselaar, Integrated Gas, Renewables and Energy Solutions Director at Shell. Demand rebounds in Asia “India and China led the recovery in LNG demand following the outbreak of pandemic,” the company said based on the latest data it has published. India increased imports by 11 per cent in 2020 as it took advantage of lower-priced LNG to supplement its domestic gas production. On the other hand, China increased its LNG imports by 7 million tonnes to 67 million tonnes, an 11 per cent increase of the year. “Overall, global LNG demand is estimated to hit 700 million tonnes by 2040. Asia is expected to drive nearly 75 per cent of this growth as domestic gas production declines and LNG substitutes higher emission energy sources,” the company said. Two other major Asian LNG importing countries Japan and South Korea also announced net zero emissions targets in 2020. To meet its net-zero target, South Korea aims to switch 24 coal fired power plants to cleaner burning LNG by 2034. According to estimates, more than half of future LNG demand will come from countries with net zero emission targets.