Saudi Oil Exports Dropped in March From Two-Year High In February
Crude oil exports from Saudi Arabia fell slightly in March from February, when the world’s top crude exporter shipped the highest level of crude since April 2020. The Kingdom’s crude oil exports averaged 7.235 million barrels per day (bpd) in March 2022, down from 7.307 million bpd in February, which was the first time since April 2020 that the Saudis had exported more than 7 million bpd of crude, data from the Joint Organisations Data Initiative (JODI) showed on Monday. Despite the decline in crude shipments in March, Saudi Arabia’s exports still held above the 7 million bpd mark as the Kingdom is unwinding the production cuts per the OPEC+ agreement. Data from JODI, which compiles self-reported data from the countries, showed last month that Saudi crude exports rose in February to the highest level since the April 2020 month-long price war with OPEC+ ally Russia. Back then, the Saudis flooded the market with oil after failing to initially agree on a response to the plunge in global oil demand as countries imposed lockdowns to fight COVID. Saudi Arabia has been raising its crude oil production by over 100,000 bpd each month under the OPEC+ deal for a total of 400,000-bpd increase from all members of the pact. In the months leading to February 2022, Saudi Arabia had been raising slightly its crude exports each month. But the increase between January and February was more than 300,000 bpd, suggesting that the Kingdom drew more crude from elsewhere to export much more than its monthly increase in crude production. The high international crude oil prices and recovering demand probably also played a role in the higher Saudi crude exports in February. At the end of March, China started to impose the strictest lockdowns since the onset of the pandemic, leading to concerns about demand in the second quarter and total global oil demand for this year. Saudi crude oil production increased by 75,000 in March to 10.3 million bpd, per JODI data. That’s the same figure the Saudis self-reported to OPEC for March, although the cartel’s secondary sources pegged Saudi crude production as rising by 54,000 bpd to 10.262 million bpd in March.
Oil Prices Surge Past $113 As Shanghai Signals End Of Lockdown
Oil prices have topped $113 per barrel on optimism that China’s lockdowns are coming to an end and demand will not take a prolonged hit. In early afternoon markets Monday, news that Shanghai was seeing a strong recovery from COVID cases, with plans in place to ease lockdown restrictions beginning this week, outweighed a litany of bearish news for oil. Brent was at $113.6 per barrel on 1:38 pm EST, while WTI was trading at $113.5. Authorities in Shanghai on Monday said restrictions would finally ease, in stages, after nearly six weeks of lockdowns that have shaken the Chinese economy and disrupted global supply chains. On 1 June, Shanghai is scheduled to see lockdowns end, with a gradual easing beginning on May 21st. “From June 1 to mid- and late June, as long as risks of a rebound in infections are controlled, we will fully implement epidemic prevention and control, normalise management and fully restore normal production and life in the city,” the Guardian quoted deputy mayor Zong Ming as saying Monday. The announcement comes shortly after downward pressure was put on oil prices over new releases of weak Chinese economic data and signals that the European Union’s plans to ban Russian oil had faltered. On Monday, China published official economic data, showing a significant slowdown, with industrial output falling by nearly 3% year-on-year in April, and retail sales down by around 11%. Shanghai’s port volumes were also down by 40%, according to DW. All of this has led to a decline in demand for oil coming out of China. However, according to new data from the Saudi Arabia-based Joint Organizations Data Initiative (JODI), global oil demand surpassed pre-pandemic levels in March, at 101%, despite declines in Chinese demand. However, the report noted that crude oil production was at 97% of pre-COVID levels. The data is based on submissions that account for 70% of global oil demand and 55% of global crude production.
Failure To Implement Russian Oil Ban Could Send Oil Crashing To $65
A key factor in the upper band of the benchmark crude oil trading ranges over the past weeks is market concern over a ban of Russian oil exports to the European Union (E.U.). Prior to the invasion of Ukraine, Europe was importing around 2.7 million barrels per day (bpd) of crude oil from Russia and another 1.5 million bpd of oil products, mostly diesel. This fear, though, is vastly overblown for several reasons analysed below. The removal of this particular fear factor in the oil price will allow oil prices to move back over the course of this year to the level they were before the Russia-Ukraine ‘war premium’ began to be priced in by the smart money in September 2021, which was around US$65 per barrel (pb) of Brent. The primary reason why a meaningful E.U. ban on Russian oil (or gas) will not occur is that it would require the unanimous backing of all of its 27 member countries. Even before the E.U.’s 27 member states met on 8 May to discuss pushing forward with the ban on Russian oil, Hungary and Slovakia had made it clear that they were not going to vote in favour of it. According to figures from the International Energy Agency (IEA), Hungary imported 70,000 bpd, or 58 percent, of its total oil imports in 2021 from Russia, while the figure for Slovakia was even higher, at 105,000 bpd, equating to 96 percent of all its oil imports last year. Other E.U. countries also heavily reliant on Russia’s Southern Druzhba pipeline running through Ukraine and Belarus have also made it clear that they are not willing to support the ban on Russian oil exports, the most vocal of which have been the Czech Republic (68,000 bpd, or 50 percent or its 2021 oil imports came from Russia) and Bulgaria (which is almost completely dependent on gas supplies from Russia’s state-owned oil giant Gapzrom, and its only refinery is owned by Russia’s state-owned oil giant, Lukoil, providing over 60 percent of its total fuel requirements). Other E.U. member states that are also especially dependent on Russian oil imports are Lithuania (185,000 bpd, or 83 percent of its 2021 total oil imports) and Finland (185,000 bpd, or 80 percent of its total oil imports). Even compromise proposals offered by the E.U. of allowing Hungary and Slovakia to continue to use Russian oil until the end of 2024 (and the Czech Republic until June 2024) were not enough to remove their opposition to the idea of the E.U. ban on Russian oil. In fact, the only real flurry of activity in terms of a concerted effort by any group within the E.U. since Russia invaded Ukraine on 24 February has been to ensure that Russia did not stop supplying its member states with either oil or gas due to their not being able to pay in the way Moscow preferred. This followed the 31 March decree signed by Russian President Vladimir Putin requiring E.U. buyers to pay in roubles for Russian gas via a new currency conversion mechanism or risk having supplies suspended. According to an official guidance document sent out to all 27 E.U. member states on 21 April by its executive branch, the European Commission (E.C.): “It appears possible [to pay for Russian gas after the adoption of the new decree without being in conflict with E.U. law],… E.U. companies can ask their Russian counterparts to fulfill their contractual obligations in the same manner as before the adoption of the decree, i.e. by depositing the due amount in euros or dollars.” The E.C. added that existing E.U. sanctions against Russia do not prohibit engagement with Gazprom or Gazprombank, beyond the refinancing prohibitions relating to the bank. Not only have several E.U. member states made it plain that they will veto any E.U. proposal to ban Russian oil (or gas) imports – and recall that all 27 E.U. member states must vote in favour of such a ban for it to come into effect – but also its own executive branch, the E.C., has been busy sending out crib notes on how best to continue to pay for Russian oil and gas imports, effectively to bypass any wider sanctions on them, including those from the U.S. Added to this is the lack of ideological surety emanating from the E.U.’s de facto leader, Germany, on the subject of the ban on Russian oil. There can be little doubt that the E.C.’s handy directive of 21 April on how to skirt sanctions on paying for Russian oil imports received the tacit approval of those responsible for such matters in Germany, otherwise, simply, it would not have been drafted or sent out. Germany is also set to be hit hard itself by any ban on Russian oil in the first instance, and gas later on, being the recipient in 2021 of the most crude oil from Russia of any country in the E.U. – an average of 555,000 bpd, or 34 percent of its total oil imports in that year, according to the IEA. Comments from German Economics Minister, Robert Habeck, that Berlin was prepared for a ban on Russian energy imports were overlaid with considerable detail about how Germany has still not been able to find alternative long-term fuel supplies for the Russian oil that comes by pipeline to a refinery in Schwedt operated by Russia’s state-owned oil giant Rosneft. He concluded that fuel prices could rise and that an embargo “in a few months” would give Germany time to organise itself in this regard. The lack of clear leadership in the E.U. from Germany is not just another reason why there will be no meaningful E.U. ban on Russian oil (and gas) any time soon, if ever, but also opens up the probability that even if there were such a ban then it would have more holes in it than a fine Swiss cheese, just like the earlier bans and sanctions on Iran. As analysed
Saudi energy minister says oil capacity may hit 13.4m bpd with increased output from Neutral Zone
Saudi Energy Minister Abdulaziz bin Salman has said the Kingdom could produce between 13.2-13.4 million barrels of oil per day by the end of 2026 or beginning of 2027 thanks to increased output in the divided zone. While talking at the opening of the 29th Middle East Petroleum and Gas Conference in Bahrain, the energy minister revealed that oil demand has increased post-pandemic, but there is no refining capacity commensurate with the current demand. He also made it clear that there are no issues surrounding the availability of crude. “We have no money to waste on anywhere else,” he told the conference. On the Durra natural gas field, located in an energy-rich area shared with Kuwait, the minister said both countries were proceeding with its development. Iran says it has a stake in the field and considers a Saudi-Kuwaiti agreement signed earlier this year to develop it “illegal.” Saudi Arabia and Kuwait invited Iran in April to hold negotiations to determine the eastern limit of the joint offshore area and reaffirmed their right to develop the gas field located within it. “We are proceeding with that field, we have made a joint public statement encouraging Iran to come to the negotiation table if they claim they have a piece of that and it remains a claim,” Prince Abdulaziz said, adding Saudi Arabia and Kuwait wanted to work together in any discussions as they had a common interest in the resources. Prince Abdulaziz also took a swipe at world leaders claiming there is a transition to cleaner energy sources, saying that countries are buying coal for almost four times the previous price and also telling France not to push ahead with new nuclear energy provisions. He added that Saudi Arabia is working together with countries like Kuwait to return to old oil output capacities The minister stated that power generation using gas and renewables domestically will help free a million barrels of oil per day for export. He noted that the Kingdom is running out of capacities at all levels which is truly a matter of concern for the whole world. The minister added that more hydrocarbon investments are needed to resolve issues surrounding energy generation.
BPCL sale on back burner
The government has put the privatization of Bharat Petroleum Corp Ltd (BPCL) on hold. Several reasons, like rising crude prices and indifferent performance of the BPCL share, are said to be responsible for the halt. “BPCL privatization is not on track,” a senior official in the Department of Investment and Public Asset Management (Dipam) informed Bizz Buzz. “It’s not moving. Decision is on the table. We have to take it.” He, however, didn’t specify what decision the government is contemplating. The Dipam official actually confirmed what Vedanta Group Chairman Anil Agarwal had said on April 24. “It (BPCL divestment) will not happen. They’ve said that they (the government) have withdrawn the offer, they will come back with a new strategy,” he had told a news website. Vedanta Resources and private equity (PE) firms Apollo Global and I Squared Capital’s arm Think Gas had expressed interest in BPCL in November 2020, though Think Gas opted out later. Vedanta Resources was even reportedly planning to raise a $10-billion fund to buy the government’s 52.98 per cent equity in the oil major. The government intended to privatize BPCL by March 2021, but even financial bids have not been invited. One reason for the delay was the Covid pandemic. When the privatization process was ongoing, BPCL last year sold its 61.65 per cent equity in the Assam-based Numaligarh Refinery Ltd (NRL) for Rs 98.75 billion. NRL sale, however, was not a privatization, as the company was bought by a consortium of two public sector companies, Oil India Ltd and Engineers India Ltd (49 per cent), and the Assam government (13.65 per cent).