Russian oil supplies to China and India are growing noticeably, says Vladimir Putin
The ongoing Russian invasion of Ukraine has prompted the United States and other western countries to impose hard sanctions of Russia and the European Union (EU) has also been trying to decrease oil and gas imports from the country. However, India and China have been importing oil supplies from Russia even now and President Vladimir Putin said at the BRICS Business Summit that trade with both nations has strengthened lately. According to AFP, Putin said that Russia’s trade with Brazil, India, China and South Africa rose 38% in the first three months of the year to $45 billion. “Russian oil supplies to China and India are growing noticeably,” Putin said in a video address. “Russian oil deliveries to China and India are increasing. Agricultural cooperation is developing dynamically, as is the export of Russian fertiliser to BRICS countries”, he added according to AFP. Putin also called upon the BRICS nations to strengthen their ties amid the global economic crisis. “Businessmen of our countries are forced to develop their business under difficult conditions where Western partners neglect the basic principles of market economy, free trade, as well as the inviolability of private property,” Putin said at the BRICS Business Summit on Wednesday. The sanctions enforced by the US and EU have affected the Russian economy to a certain extent and Putin were quick to criticise “the permanent implementation of new politically motivated sanctions” by the US and other western countries that contradict “common sense and basic economic logic”. Putin concluded his speech by saying that Russia is looking at “alternative international transfer mechanisms” with BRICS nations in order to reduce their dependence on Dollar and Euro.
Gujarat Gas: Double whammy of falling oil and rising gas prices
Gujarat Gas Ltd – India’s largest city gas distributor in terms of volumes – is facing a double whammy of falling crude prices and rising gas prices. According to Credit Suisse, the reducing spread between gas and crude prices makes alternate fuels like propane more attractive as compared to gas. Gas prices have reasons due to multiple factors – shutdown of FreePort LNG terminal in the US, Nord Stream pipeline is expected to go under week-long annual maintenance in mid-July 2022, Norway’s pipeline to the UK is under maintenance and given the fact that most of the US gas into Europe comes from the Gulf of Mexico coast which is at the brink of the Hurricane season, which may affect shipping lines, according to Credit Suisse. Asia Spot Gas prices jumped to $37/mmBtu as against last month’s average prices of around $23/mmBtu. This sudden rise in spot gas prices could impact Gujarat Gas’ volumes and/or margins. Gujarat Gas’ dependence on imported gas is the highest as it derives most of its revenue by selling gas to industries. Nearly 75% of its total sales volume is from industrials. At present, Gujarat Gas has a 30%-35% gas sourcing requirement that is dependent on the spot market, while the rest comes from domestic gas and long-term contracts. In the industrial region of Morbi – the main market of Gujarat Gas – industries are shifting to propane as gas has become expensive. With a further increase in prices, the shift towards propane could accelerate. On the other hand, if Gujarat Gas keeps the gas prices at current levels, then the same could impact margins. Recently, ETNOW and ETNOW Swadesh had interacted with Manoj Patel, Vice President, Morbi Ceramic Association, where he said that propane continues to remain cheaper by around 11%-12% as compared to gas prices. Currently, half of the fuel requirement is supplied through Gujarat Gas and the rest is propane, and if the gas price remains high, within the next 2-3 months, 60%-70% of gas volumes could go towards propane, he added. However, Motilal Oswal continues to remain bullish on Gujarat Gas ass it believes that over the long term, LNG would continue to remain cheaper than LPG, except during the summer season. Further, increased availability of domestic gas over the few months is likely to help the company to reduce its sourcing cost, thereby helping improve its margins.
Sharp drop in crude oil prices poses upside risks for OMCs: Report
The nascent rally in energy stocks have faded in recent past as continued slide in international crude prices and the lack of any increase in petrol and diesel prices dragged down oil marketing companies (OMCs). Energy companies including Oil and Natural Gas Corporation (ONGC), Reliance Industries, Oil India, BPCL, HPCL, Adani Total Gas are reeling under selling pressure these days as global benchmark Brent crude has witnessed significant fall recently amid growing fear that the global recession and fresh Covid-19 outbreak in China would impact demand for fuel. According to ICICI Securities report, a sharp drop in crude price and pricing decisions for petrol and diesel pose key upside risks for OMCs. Fuel prices have been kept unchanged for one month since May 21, after the government announced a cut in excise duty on petrol by ₹8 per litre, and by ₹6 per litre on diesel to ease inflationary pressure. However, the oil prices in the international market continued to fluctuate, hitting a high of $125 a barrel in intraday trade on June 14 to $108.05 per barrel during the session today. On Thursday, the Brent oil for August delivery was trading 2% lower at $109.5 per barrel, while the U.S. West Texas Intermediate (WTI) crude August futures were quoting at $103.8 a barrel, down 2.3%. In the previous session, Brent and WTI fell over 4% amid persistent fear that aggressive rate hikes by the U.S. Federal Reserve and other central banks would push the global economy into recession. The marketing segment for OMCs is continuously incurring losses, owing to strong international petrol and diesel prices and the lack of any price increase seen in either fuel in more than a month, says the report. However, this has been offset by a very strong refining margin environment, with calculated margins for OMCs trending at around $18-20 per bbl over the recent weeks. It is further boosted from the reported 20% crude sourcing from Russia at 20-25 per bbl discount to benchmark crude. The report noted that despite the strength seen in refining, overall earnings for OMCs will continue to remain under pressure, given the steady expansion in marketing losses over the last 3 months. “With international prices expanding sharply over the last 2-3 months and the continuing freeze on price increases in retail fuels, estimated losses on petrol and diesel have escalated to ₹10.5/ltr and ₹12.5/ltr for Q1FY23 (till week of 17th June 2022) vs loss of ₹1.5/ltr and ₹1.6/ltr, respectively, for Q4FY22,” it added. “However, factoring a record $20-22/bbl Gross refining margin (GRM) for the entire FY23E also cannot offset more than ₹3-4/ltr of net retail loss on petrol/diesel. We see a sharply lower EPS trajectory for FY24E as well if we factor lower marketing earnings trajectory to continue for longer-than-earlier estimates, owing to the Russia-Ukraine conflict,” it added. The brokerage has also cut earnings for FY23-24E by 15-60% to factor higher marketing losses, offset by sharply higher GRM estimates. The agency has downgraded state-owned oil retailer Hindustan Petroleum Corporation Ltd (HPCL) to “REDUCE” from “ADD”, Bharat Petroleum Corporation Ltd (BPCL) to “ADD” (from “BUY”). The agency has retained “BUY” call on Indian Oil Corporation Ltd (IOCL). “For BPCL & HPCL, a sharp turnaround in pricing decisions for petrol and diesel and a sharp drop in crude price are key upside risks. A sharp fall in refining and even higher marketing loss are key downside risks for IOCL,” the report noted. On Thursday, the S&P BSE energy index extended losses and declined 1.3%, led by Mangalore Refinery & Petrochemicals (MRPL) and Chennai Petroleum Corporation Limited (CPCL), which fell around 6%. Index heavyweights Oil and Natural Gas Corporation (ONGC), Reliance Industries and Adani Total Gas fell up to 1.5%.