Goldman Sees $5 Gasoline, $130 Brent By Year End
The price of retail gasoline just dipped below $4 per gallon, AAA data showed on Thursday, but prices could rise to $5 per gallon by the end of the year, Goldman Sach’s Head of Energy Research Damien Courvalin told Bloomberg TV on Thursday. “We think that’s the level at which we need to see sustained pricing to eventually solve the market deficit,” Courvalin told Bloomberg. As for crude oil prices, Courvalin sees Brent climbing to $130 by the end of the year. “So we think Brent goes to $130 per barrel at the end of this year to reflect this need for sustained high prices.” “We’re still in deficit. Despite growth slowing, prices still have work to do, and that’s higher from here.” Goldman’s forecast assumes China’s demand for jet fuel and diesel only grows moderately from here until the end of 2023, pressured by its zero-Covid policy. That scenario could shift, Courvalin points out. “If we’re talking half a million barrels per day of Chinese demand going back to its prior highs, just on our pricing model, that’s $15 upside per barrel to Brent prices.” In the shorter term, Courvalin sees gasoline and diesel prices going up as refiners head into turnaround season due to the lack of a typical inventory buffer that is currently not present in the market. As of the latest EIA data, total motor gasoline inventories in the United States were 6% below the five-year average for this time of year, while distillate fuels were 24% below the five-year average. Brent crude was on the upswing on Thursday, trading $2.38 (2.44%) higher on the day at $99.78, pressing to reclaim its position above $100 per barrel—a position the international crude oil benchmark has held for most of the summer.
ONGC told to close well after obtaining permission
The district administration has directed the Oil and Natural Gas Corporation (ONGC) to take up the closure of its well at Periyakudi in Tamil Nadu after obtaining the necessary permission. In a press release, Collector P. Gayathri Krishnan stated that the ONGC had approached the district administration stating that the well drilled at Periyakudi in 2012 was closed subsequently in 2013 due to some complications. Since the well was closed utilising the technology available at that time, the ONGC had planned to revisit the well and close it again using the latest technology for the safety of the region. “The ONGC has been directed to take up the work after getting permission from the district administration and not to take up any activity other than the closure of the well at Periyakudi”, she added. Meanwhile, the ONGC sources claimed that being a Central Government Public Sector Unit it was always committed to the best, safe and environmentally clean operations and abides by the rules and regulations of the land, including the “Tamil Nadu Protected Agriculture Zone Development Act 2020”. With respect to the issues raked up by some people concerning the works planned by the Corporation at the other well at Adiyakkamangalam in Tiruvarur district, it clarified that this well which was put into production in 2008 was not flowing since 2021 due to pressure depletion. Since this well was a deep well, higher capacity rigs other than the smaller ones were to be pressed into service for repair and other jobs at Adiyakkamangalam, it added.
India advances target for supplying 20% ethanol mix petrol to 2025
The Ministry of Petroleum on the occasion of World Biofuel Day, on Wednesday, said India aims to achieve 20% petrol-Ethanol blending by the year 2025. Union Minister for Petroleum and Natural Gas Hardeep Singh Puri said select petrol pumps within the country will start supplying petrol with 20% ethanol as early as April next year and will increase supply thereafter as India aims to reduce oil dependence. Ultimately, a fifth of all petrol in India will be made up of ethanol, he added. The target of supplying petrol with 10% ethanol across petrol pumps was achieved ahead of schedule in June this year, prompting authorities to advance the target of 20% ethanol-mixed petrol by 5 years to 2025, reported news agency PTI. Also on the occasion of World Biofuel Day, Prime Minister Narendra Modi dedicated a second generation (2G) Ethanol plant in Panipat, Haryana to the nation today via video conferencing. Terming the Ethanol plant just a beginning, PM Modi said that this plant will reduce pollution in Delhi, Haryana and NCR. The Prime Minister said that in a country like ours that worships nature, biofuel is a synonym for protecting nature. “Our farmer brothers and sisters understand this better. Biofuel for us means green fuel, environment-saving fuel. He said that with establishment of this modern plant, farmers of Haryana, where Rice and wheat are grown in abundance, will get another lucrative means of using crop residue,” Modi said. The bio-fuel plant of Panipat will also be able to dispose off the stubble without burning it, leading to many benefits. “The first advantage would be that mother earth would be freed from the pain that was caused by burning stubble. The second advantage would be that the new systems for stubble cutting and its disposal, new facilities for transportation and new biofuel plants will bring new employment opportunities in all these villages. The third advantage would be that the stubble which was a burden for the farmers, and was a cause of concern, would become a means of additional income for them. The fourth advantage will be that pollution will be reduced, and the contribution of farmers in protecting the environment will increase further. And the fifth benefit will be that the country will also get an alternative fuel. The Prime Minister expressed happiness that such plants are coming up in various areas of the country,” he added. The Prime Minister said that people who have a tendency to avoid problems by adopting shortcuts for political selfishness can never solve the problems permanently. Those adopting short-cuts may get applause for some time, and may gain political advantage, but that does not solve the problem. Adopting a short-cut will definitely result in a short-circuit. Instead of following short-cuts, our government is engaged in permanent solutions to the problems. A lot has been said about the problems of stubble over the years. But those with a short-cut mentality could not solve it, he said. The Prime Minister listed steps that aim to solve the problem in a comprehensive manner. Farmers Producer Organisations (FPO) were given financial support for ‘parali’, upto 80 percent subsidy on modern machinery for crop residue, and now this modern plant will help in providing a permanent solution to this problem, he said. “Farmers who were given bad name due to compulsions of parali burning will now feel the pride of contributing to production of bio-fuel and nation building”. The Prime Minister also mentioned Gobardhan Yojana as an alternative means of income for farmers.
Gas prices tumble below $4 for the first time in months
Drivers in the United States can breathe a small sigh of relief — average gas prices have dropped below $4 a gallon for the first time since March. The national average price for regular gasoline fell to $3.99 a gallon on Thursday, according to AAA. Gas prices hit a record high of $5.02 in June as drivers filled their tanks for the summer travel season. They were also pushed higher by soaring global oil prices as the West turned its back on Russian crude in the wake of Moscow’s invasion of Ukraine. But prices at the pump have since tumbled 21% as drivers have pared back spending and fears of a recession threatened to crimp demand. Despite the drop, they remain 25% higher than this time last year. “The market was panicked at the start of the summer. Inventories were extremely tight,” said Patrick De Haan, head of petroleum analysis at GasBuddy. “But the market got overcooked. It was overbought.” De Haan said the national average could keep falling for the next five to 10 days before stalling out in the $3.70s or $3.80s. However, he noted that oil prices have started to bounce off their recent lows and hurricane season could disrupt energy supplies. Brian Deese, director of the White House’s National Economic Council, said the drop below $4 is an important development for Americans, translating to $100 less in fuel costs for a typical family with two cars. “That’s meaningful savings people are going to feel in their lives,” Deese told CNN in a phone interview. Deese said the White House has been tracking gasoline prices and energy supplies “very closely” and added that prices should continue slipping. “Pricing in the market today suggests we should see prices at the pump fall a bit more,” he said. “Despite steadily falling gas prices during the peak of the summer driving season, fewer drivers fueled up last week,” the AAA said in a Monday press release. “It’s another sign that, for now, Americans are changing their driving habits to cope with higher pump prices.” Analysts say the unprecedented release of emergency oil by the United States has also helped to drive down oil and gasoline prices. In late March, the White House announced the release of 1 million barrels a day from the Strategic Petroleum Reserve for six months. US crude oil prices have fallen sharply from a peak above $120 a barrel in June to around $92 a barrel on Thursday, helped by an easing of the global supply crunch. In a report released Thursday, the International Energy Agency revised up its outlook for global oil supply, partly because Russia has continued to pump more oil than expected. “While Russia’s exports of crude and oil products to Europe, the US, Japan and Korea have fallen by nearly 2.2 [million barrels per day] since the start of the war, the rerouting of flows to India, China, Türkiye and others, along with seasonally higher Russian domestic demand has mitigated upstream losses,” the Paris-based agency said. By July, Russian oil production was only 310,000 barrels per day below pre-war levels while total oil exports were down just 580,000 barrels per day, it added. The release of 180 million barrels of oil from the US Strategic Petroleum Reserve has also helped bump up supply.
Petroleum Ministry to divert gas from industries after CNG, piped gas prices jump 70% in a year
The Petroleum Ministry has ordered the diversion of natural gas from industries to the city gas distribution sector to cool CNG and piped cooking gas prices that have shot up by 70% on the use of imported fuel. Less than three months after it ordered the use of costlier imported LNG to meet incremental demand for automobile fuel CNG and household kitchen gas PNG, the ministry on August 10 reverted to an old policy of primarily supplying domestically produced gas for city gas operations. The allocation for city gas operators like Indraprastha Gas Ltd in Delhi and Mahanagar Gas Ltd of Mumbai has been increased from 17.5 million standard cubic meters per day to 20.78 mmscmd, officials said. The increased allocation will meet 94% of the demand for CNG to automobiles and piped cooking gas to household kitchens in the country. Previously, about 83-84% of the demand was met and the remaining was met through the import of LNG by GAIL, they said. Use of domestic gas instead of imported fuel will bring down the cost of raw material and ease CNG and PNG rates, officials said. The move follows a massive jump in CNG and PNG prices in the country in the last one year as operators used costlier imported LNG. CNG prices in Delhi went up by a massive 74% (from ₹43.40 per kg in July 2021 to ₹75.61 per kg now) while PNG prices rose by 70% (from ₹29.66 per standard cubic meter to ₹50.59 per scm). Natural gas is the raw material that is used for CNG and PNG. This gas comes from fields such as Mumbai High and Bassein in the Arabian Sea. As the domestic production of gas is insufficient to meet all the requirements, the fuel is imported in the form of Liquefied Natural Gas (LNG) in ships. To promote the use of cleaner fuel, the government in 2014 included the City Gas Distribution (CGD) sector on the top priority list for receiving gas from older or regulated fields of state-owned ONGC and Oil India. The CGD was put on a ‘no cut’ priority sector and allocation was made twice a year — in April and October — based on consumption data of the previous six months. The ministry made such full allocation in March 2021 and thereafter, in May 2022, issued an amendment to the 2014 supply guideline to state that incremental demand over and above the last year’s level would be met through imported LNG. State-owned gas utility GAIL was asked to average out the price of domestically produced gas and imported LNG every month and supply gas at a pooled price. This pooled price for August came to $10.5 per million British thermal unit. In comparison, the gas from regulated fields of ONGC is priced at $6.1 per mmBtu (it was $2.9 last year when CNG operators started meeting additional demand through imported LNG). LNG rates shot up this year, leading to a hike in CNG and PNG prices, officials said. Spot or current LNG prices have more than doubled in the last few months to about $40 per mmBtu. With industry saying that CNG was losing an edge over petrol and diesel because of the price hikes, the ministry relented and agreed to increase the allocation of gas from regulated fields, they said. The allocation for CGD was increased by cutting some supplies to LPG-making plants of GAIL and petrochemical units of ONGC, officials said. City gas operators complained against the May 2022 guideline as it meant using high-priced imported LNG, which led to frequent CNG and piped natural gas price hikes, they said. After the latest amendment, the gas price will come down to $7.5 from $10.5, officials said. “Supply for domestic gas to the CGD entities shall be made only up to the quantity available and allocated to GAIL for CNG (transport) and PNG (domestic) segment instead of 102.5% of consumption level in the previous quarter,” the August 10 order of the ministry said.
Are Oil Prices Set For A Comeback?
Oil prices have given up in recent weeks all the gains they had made since the Russian invasion of Ukraine as market fears of recession intensified. There are signs of slowing economic growth, which could dent oil demand. But oil market participants and analysts are struggling to estimate how much demand could suffer in a recession that will be nothing like the 2008/2009 credit collapse and crisis. Bearish factors are dominating current market sentiment, but some analysts say that paper traders may have already priced in too much fear of recession. At the same time, the U.S. labor market is outperforming expectations, defying other gloomy signals that America’s economy is slowing. Moreover, annual inflation in the U.S. in July eased from the previous month due to lower gasoline prices. Still, bearish sentiment currently prevails on the oil market, as participants are paying more attention to recession fears, the steady Russian oil exports contrary to early expectations of massive losses in the region of 3 million bpd, and weaker Chinese factory activity and snap COVID-related lockdowns weighing on fuel demand. Imminent bullish signals include the hurricane season in the United States this month and next, where severe storms and hurricanes could force shut-ins at Gulf of Mexico production platforms or preemptive shut-ins at refineries along the Gulf Coast. Another bullish factor by the end of the year could emerge from the end of the U.S. SPR releases, currently expected to end in October. At the same time, U.S. oil producers are not boosting output too much—even at $100 oil—due to continued capital discipline, supply chain constraints, and cost inflation. The full effect of the EU ban on imports of Russian seaborne oil, expected to kick in at the end of the year, is also challenging to estimate, as is the impact of a possible price cap on Russian oil, which would allow insurance and other services for Russia’s crude if buyers commit to buy it at or below a certain price. Recession Fears The oil market, however, is currently in the grip of concerns about a global recession and demand destruction. Recession fears in Europe have intensified amid the sky-rocketing energy prices and low supply of Russian pipeline gas which is forcing companies in some energy-intensive industries to curtail production. In the UK, the Bank of England warned last week that the country is expected to enter a recession from the fourth quarter of this year, which will last until the end of 2023. The net long speculative positions—the difference between bullish and bearish bets—in Brent and WTI had dropped to a very low level as of early August due to fears of a recession and softening global economic growth, SEB bank said in a research note earlier this week. The physical crude market is also losing steam due to fears of an economic slowdown or recessions, traders told Reuters this week. “The market is very bearish at this moment. No one is in a hurry to buy,” a trader based in Singapore told Reuters. Yet, the labor market in the U.S. remains strong, and the latest employment data far exceeded analyst estimates. Total nonfarm payroll employment rose by 528,000 in July, and the unemployment rate edged down to 3.5%, the U.S. Bureau of Labor Statistics said last week. The numbers smashed Dow Jones estimates of 258,000 job additions and a 3.6% unemployment rate. “The report throws cold water on a significant cooling in labor demand, but it’s a good sign for the broader U.S. economy and worker,” Michael Gapen, an economist at Bank of America, said in a note cited by CNBC. Some analysts say the 9% drop in WTI Crude futures last week was exaggerated, and the economic concerns could be overblown. Caroline Bain, chief commodities economist at Capital Economics in London, told Houston Chronicle: “The big picture,” she said, “is that the market could be pricing in too much recession fear.” The near-term oil price movement will be led by the economic picture, inflation, and interest rate hikes, but some bullish factors could tip the sentiment back to rallying prices. These include very low global spare capacity, OPEC+’s inability to pump much more than it is producing now, and the wild card Russia and its standoff with the West. It will become clearer in the coming months how Russian supply to the markets could be affected and whether Putin will simply stop selling oil to those countries who join a potential price cap on Russian oil. The proposed price cap includes allowing insurance and other services for Russia’s oil shipment, but Moscow has already said it would not export its oil if the price cap is set below its cost of production. While some analysts say that oil is headed even lower with recessions looming, others say this recession could be different and not lead to an actual drop in oil demand year over year. Goldman Sachs, for example, revised down its Brent price forecast for this quarter to $110 a barrel, down from a previous projection of $140 per barrel, but it still believes the case for higher oil prices remains strong. “We believe that the case for higher oil prices remains strong, even assuming all these negative shocks play out, with the market remaining in a larger deficit than we expected in recent months,” Goldman Sachs’s strategists wrote in the note this week carried by Bloomberg.