Why India Is Suddenly Buying Less Russian Crude
India, which has been buying large volumes of Russian crude since the Russian invasion of Ukraine to take advantage of cheap oil, is set to slow purchases of Russian oil this month and look to more African and Middle Eastern supply as shipping rates on longer voyages have jumped. Before the war in Ukraine, India was a small marginal buyer of Russian oil. After Western buyers started shunning crude from Russia, India became a top destination for Russian oil exports alongside China. Indian refiners haven’t expressed hesitation to deal with Russia—their primary incentive to buy has been the much cheaper Russian oil than international benchmarks and similar grades from the Middle East and Africa. However, with a recent surge in freight rates, Russian oil doesn’t look so cheap. Moreover, the travel time from Russia’s Far East, where the ESPO grade is loading for exports, is a month to India, compared to a week necessary for a Middle Eastern cargo to reach India. In September, Indian refiners are not expected to buy any ESPO crude from Russia because of the higher shipping rates, industry sources told Reuters on Thursday. “On net back basis after factoring in the freight, the landed cost of ESPO is turning out to be $5-$7 a barrel costlier in comparison to similar grades from other countries such as UAE’s Murban,” an Indian industry source with knowledge of the deals and prices told Reuters. Refiners in India prefer to purchase crude from Africa and the Middle East instead of Russia’s ESPO, the source added. This shift in India buying comes just a few months after Russia overtook Saudi Arabia to become India’s second-largest supplier of crude oil earlier this year. As a result of no ESPO loading for India this month, more volumes of that grade would likely go to China, which is much closer to Russia’s Far Eastern oil export ports.
Natural Gas Prices Continue Plunge As Europe Fills Up Ahead Of Schedule
Europe’s natural gas prices have continued their sharp pullback across UK and European benchmarks as the continent has filled up its gas storage ahead of schedule. Benchmark Dutch front-month futures fell 6.7% on Monday while the UK Natural Gas Futures benchmark crashed 15.2 per cent to £2.43 per therm–a level well below all-time highs posted only a month ago. Gas prices have now eased 50% from record highs last month, thanks to Europe managing to successfully top off supplies ahead of winter while Russia has not meaningfully escalated the energy crisis since it cut off flows via the Nord Stream 1 pipeline a month ago. The plunge has brought some relief after a furious rally, though futures are still trading multiples higher than a year ago. Europe is on the brink of a recession, with inflation running at the highest in decades in several countries. European Governments have collectively set aside some 280 billion euros ($278 billion) in relief packages. Europe’s gas storage is running about nine weeks ahead of last year, an impressive feat even after flows from Russia have been severely curtailed. European gas storage levels are close to 90%, and have even surpassed the 5-year average, according to data from Gas Infrastructure Europe (GIE). Analysts at Standard Chartered Plc have said that President Vladimir Putin’s gas weapon will be effectively blunted by Europe’s inventory build, with Europe set to go through winter “comfortably” without Russian gas. That said, Europe will have to pay a heavy price: the cost of replenishing natural gas stocks is estimated at over 50 billion euros ($51 billion), 10 times more than the historical average for filling up tanks ahead of winter. Another big factor driving the gas price decline: inclement weather. Hurricane Ian is currently hurtling toward Florida and the Southeast and could hit the coastline later this week. Forecasters have predicted that Hurricane Ian could turn into a major hurricane with winds reaching 111 mph or greater by the time it makes landfall in the U.S.
Small Players Are Struggling To Survive In The Booming LNG Market
The surge in LNG prices has caused the international market for the fuel to concentrate in the hands of several large players, with a multitude of small LNG traders getting squeezed out. Reuters noted in a report today that the physical LNG market had swelled twofold since 2011, which has led to the increase in the numbers of LNG traders, especially small ones. These small traders, according to the report, accounted for a fifth of China’s imports of the liquefied fuel. The price spike that came amid Europe’s energy crisis, however, has left many of these small players struggling, giving the upper hand to larger LNG traders with the means to weather the price shock and take advantage of it. The price for a cargo of liquefied natural gas, the report notes, has risen from between $15 to $20 million in 2020 to between $175 and $200 million today. This has reflected an increase of benchmark LNG prices from less than $2 per mmBtu in 2020 to $57 in August this year. Prices have eased since hitting that high but they remain significantly elevated. “The biggest challenge facing every market participant right now is credit,” the head of one small LNG trader that had to shrink its operations told Reuters. “The ballooning of LNG cargo values, along with the spike in volatility, has … put quite a strain on those players operating with smaller balance sheets,” the managing director of LNG consultancy Capra Energy said. The higher prices are going nowhere, too. According to a recent study by Rystad Energy, commissioned by the API and the International Association of Oil & Gas Producers, Europe’s demand for U.S. LNG may have been underestimated in earlier forecasts. In fact, Rystad said, demand could grow by as much as 150 percent between 2021 and 2040. With LNG producers having to play catch-up with demand, chances are that the LNG market will remain dominated by large players.
Oil Prices Are About To Reverse Course
“That would be the road to hell for America,” JP Morgan’s CEO Jamie Dimon said last week, referring to a suggestion that all big banks divest from the oil and gas industry. In the same week, Aramco’s chief executive warned that years of underinvestment in new oil production are beginning to bear fruit, which is an undersupplied market. Despite these statements that suggested oil prices should move higher, oil fell for much of the week. Yet it wasn’t dragged down by fundamentals. Oil prices are down because many traders and investors are bracing for a recession. The bad news is that even in a recession, oil prices can go higher, and this is exactly what some of those banks that kept JP Morgan company at last week’s Congress hearing expected. Actually, JP Morgan was one of the bullish forecasters. Last week, the banking major’s analysts wrote in a note that they expected Brent crude to rebound to $101 in the fourth quarter. The analysts cited tighter supply as the reason for their forecast. Goldman Sachs is even more bullish. Three weeks ago, the bank’s analysts said Brent could hit $125 next year despite the oil price cap touted by the G7 as a tool both for keeping the market supplied with Russian oil and for lowering prices. They remain bullish to date. Morgan Stanley is a little more modest in its price expectations, seeking Brent crude at $95 per barrel in the last quarter of the year. It’s worth noting that this is a downward revision of the bank’s price outlook for the fourth quarter, which happened two weeks ago, prompted by growing recession fears. UBS also revised down its price expectations earlier this month, again citing recession concerns as well as the continued flow of Russian oil to Asian importers. That downward revision, however, brought Brent to $110, with analysts noting it could rise to $125 by the end of the third quarter of 2023. The reasons that the Swiss bank gave for the expected rebound are as interesting as they are worrying. According to UBS, oil prices wouldn’t rebound because of a recovering global economy. They would rebound because of the greater demand for oil products for electricity generation and because of tighter overall markets as the U.S. ends its SPR oil sale program. During the current quarter, oil prices have slumped by 20 percent, Bloomberg noted in a report on bank forecasts about its price. The reason, once again, had nothing to do with supply and demand dynamics. It had a lot to do with central bank policies and specifically the Fed’s aggressive move to rein in inflation by a quick succession of rate hikes that have pushed the dollar a lot higher, making commodities priced in the currency more expensive. On the fundamental front, the G7 is pushing ahead with the oil price cap, even though Russia said that it would simply not sell oil to a country enforcing a price cap. The EU, for its part, is currently discussing yet another package of sanctions against Moscow following the news that four eastern Ukrainian regions would be holding referendums to join the Russian Federation. Related: OECD: Ukraine War Will Hurt Global Economy More Than Expected Meanwhile, OPEC+ keeps falling well short of its production targets, and this will likely continue. In addition, some analysts expect the cartel to implement more production cuts, further squeezing global supply. In the U.S., inventories in the strategic petroleum reserve are at the lowest in decades, and this has worried some. Others, like Robert Rapier, have pointed out that the SPR is not as vital for the country’s supply as it used to be decades ago when the U.S. was heavily dependent on oil imports. What the above suggests is what Aramco’s Nasser warned about last week. The oil market is not in balance, and supply is getting tighter because there is little in the way of new supply to make up for natural depletion, which has been accompanied by other factors such as political instability and U.S. sanctions on large producers. At the same time, with the EU tightening the sanction screws on Russia, chances are that gas prices will remain elevated, which will result in what UBS noted as one factor for higher oil prices: greater demand for fuels to use in the generation of electricity instead of even costlier natural gas. “The consequence of global inventory drawdowns is that once demand picks up, the upshot in prices will happen all over again,” Morgan Stanley global oil strategist Martijn Rats told Bloomberg. “For now, demand has taken a step back, but the supply picture hasn’t changed that much; the supply ceiling is not that far away at all. As soon as demand picks up, we will have the same price pressures in the market again.” In a nutshell, this is the ultimate reason why oil prices will likely soon be on their way back up. Supply growth is stalling while demand is about to pick up. And depending on how strongly it picks up, we could see a lot higher oil prices next year.
IndianOil launches domestic production of aviation fuel AVGAS 100 LL
In a big step towards reducing dependence on imports to meet energy needs the government-run Indian Oil Corporation (IOC) has launched domestic production of AVGAS 100 LL, a special aviation fuel meant for piston engine aircrafts and unmanned ariel vehicles. “We are undergoing a remarkable transformation which is almost revolutionary. We are reducing dependence on imported fuels by promoting biofuel blending, green hydrogen and introduction of electric vehicles,” said Hardeep Singh Puri, Minister of Petroleum and Natural Gas & Housing and Urban Affairs, while addressing the event to launch AVGAS 100 LL. The launch event hosted by Indian Oil Corporation at Hindan Air Force Station witnessed participation by senior officials from the Indian Air Force, Flying Training Organisations and the ministries of petroleum and civil aviation. At present AVGAS 100 LL is completely imported product. The domestic production of AVGAS 100 LL produced by Indian Oil at its Gujarat Refinery will make flying training more affordable in India. This product which fuels the aircraft operated by FTOs and Defense forces is being imported for decades by India. Indian Oil’s R&D, Refineries and Marketing teams have achieved this feat of indigenous production and have offered price advantage to the industry, according to an official statement released by the Ministry of Petroleum & Natural Gas. Talking to ANI SM Vaidya, Chairman of Indian Oil Corporation Ltd (IOCL), said the indigenous production of AVGAS 100 LL will lead to significant savings in foreign exchange for the country. Vaidya expressed hope that India would soon become self-reliant in AVGAS 100 LL production. India’s consumption of AVGAS 100 LL stands at around 3,000 kilo litre per year. IOCL has been importing this special aviation fuel. Now it will start producing it at its refinery in Gujarat. Vaidya said with the new refinery capacity India would not only become self-reliant in AVGAS 100 LL but also be in a position to export it to other countries. Highlighting the importance of launch of indigenous AV GAS 100 LL, the Minister for Petroleum and Natural Gas Hardeep Singh Puri said the launch of indigenous AV GAS 100 LL is important to serve the needs of a thriving aviation industry with increase in footfall on airports, rise in number of aircrafts and Flying Training Organisations (FTOs) in trainee aircrafts for pilot training in future. As the demand for air transport in India is expected to increase manifolds in the future, there is going to be a huge demand for trained pilots also. And for this, the number of FTOs is also expected to increase significantly, he added. Under Prime Minister’s Atmanirbhar Bharat vision IOCL has come up with AV Gas 100 fuel which was imported so far at huge cost. It will ensure that all our flight schools and all other smaller aircrafts that use AV Gas 100 LL are able to buy this from indigenous sources and save money. It will make huge difference to us in terms of exporting it to areas and countries which need AV Gas 100 LL fuel, said Gen V K Singh (Retd.), Minister of State for Civil Aviation, and Road Transport and Highways. Principal grade of Aviation Gasoline, AVGAS 100 LL is designed for use in turbo-charged reciprocating piston engines aircrafts, mainly used by FTOs and defence forces for training pilots. AV GAS 100 LL produced by IndianOil’s flagship refinery at Vadodara has been tested and certified by the Directorate General of Civil Aviation (DGCA), the statutory body of the Government of India to regulate civil aviation in India. It is a higher-octane Aviation fuel meeting the product specifications with superior performance quality standards, as compared to imported grades. The indigenous availability of AV GAS 100 LL will help reduce dependence on imports and address the associated logistical challenges. The country will be able to save precious foreign exchange with the in-house availability of this product. This will also benefit more than 35 FTOs across India. With the domestic availability of this product, Ministry of Civil Aviation is considering opening more training institutes in the country. Seeing the increase in aviation traffic, the requirement of trained Pilots is expected to increase, the Ministry of Petroleum & Natural Gas said in the statement.