Worst may be over for fertilizer, gas and LNG prices, say government sources
The government believes “the worst may be over” with respect to high fertiliser, gas and spot liquid natural gas (LNG) prices, government officials aware of the matter told CNBC-TV18. Fertiliser subsidy for FY24 may settle around Rs 1500 billion, if not lower, the officials said. Notably, fertiliser subsidy for FY23 was seen at Rs 2150 billion compared to the Rs 730 billion budget estimate. Notably, the Sensex and Nifty ended at record closing highs on November 28 led by oil and gas stocks. Except metals, all sectoral indices ended in the green with oil and gas stocks up 1.5 percent. Russia’s invasion of Ukraine in February has upended the fertiliser market. But India has managed to tide over the initial challenge. The country has nimbly tackled rising costs although the subsidy outgo remains a concern
Kirit Parikh Committee report on gas prices. What can be expected
The Kirit Parikh panel was set up this September to review the gas pricing formula for gas produced in the country with the aim to ensure a fair price even as global prices for gas remained high. Due to the pandemic and the more recent geopolitical crisis, natural gas prices have shot up in the past few months. Consumers and user industries are facing the brunt alike as they depend heavily on piped cooking gas, CNG for vehicles, and gas for production. The government-led Kirit Parikh panel, which was set up to review the gas pricing formula, is likely to recommend a complete liberalization of natural gas prices by January 1, 2026. The panel will submit its report on November 30, a CNBC-TV18 report stated. The Kirit Parikh panel was set up this September to review the gas pricing formula for gas produced in the country with the aim to ensure a fair price even as global prices for gas remained high. As per news reports, the draft recommendation will be tabled and finalised by the panel members on November 29. What to expect According to Petroleum Planning & Analysis Cell, prices in Delhi have risen 52 per cent in just over a year to Rs 53.59 per standard cubic metre (SCM) in October 2022 from Rs 35.11 per standard cubic metres (SCM) in September 2021. CNG prices have shot up 57.9 per cent during this period to Rs 78.61 per kg from Rs 49.76. The key expectations from the report are as follows: The committee is likely to recommend a price cap for Administered Pricing Mechanism (APM) gas, including for ONGC Ltd and Oil India Ltd. Gas from these legacy fields is sold to city gas distributors, who then raise the CNG rates and piped cooking gas prices. The panel is also expected to opt for two different pricing regimes. The panel may not comment on the gas pricing from difficult gas fields, like the Krishna Godavari block D6 (KG-D6) fields of Reliance Industries Ltd. As this would ensure that explorers, who are seeing a surge in the cost of services due to the spike in global energy rates, are not put at a disadvantage. The report may recommend an annual escalation of $0.5/mmbtu for the next few years. Gas pricing in India Gas pricing is revised twice a year and based on rough estimate from the weighted average prices of four global benchmarks: the US-based Henry Hub, Canada-based Alberta gas, the UK-based NBP, and Russian gas. The gas prices have seen a sudden surge between July 2021 and August 2022 globally. The Henry Hub price in the US has shot up 140 per cent between July 2021 and August 2022. The JKM Marker, which oversees the Northeast Asian spot price index for LNG, and is determined by S&P Global Platts, has registered an increase of almost 257 per cent. The UK’s NBP has seen a surge of 281 per cent. But in comparison, prices of CNG and PNG in India have only gone up 50 to 60 per cent as they were guarded against spot price fluctuations because of India’s long-term supply contracts. In India, prices of natural gas increased 40 per cent on October 1 as part of the government’s six-monthly review of prices.
Next Week Will Be Critical For Oil Markets
The next few days will be one of the most crucial for the oil market in weeks as several events and factors at the same time could determine the trend in prices by the end of this year and beyond. While the Chinese zero-Covid policy and protests against that policy weigh negatively on market sentiment, the OPEC+ meeting on December 4 and the beginning of the EU embargo on Russian seaborne crude oil imports on the next day are likely to shape the course of the prices. Uncertainty is high, which would stoke further volatility in prices. Oil slumped early on Monday to the lowest level in nearly a year – since December 2021, weighed down by risk aversion in commodity markets amid protests in China over the authorities’ strict Covid curbs policy. The recent price rout, with Brent plunging by 10% in one week, intensified speculation that OPEC+ members could consider another production cut when they meet on Sunday, December 4. On the following day, December 5, the EU ban on imports of Russian crude oil and the associated G7-EU price cap begins, with the exact price of the cap yet to be agreed on and announced. With so many uncertainties, oil prices are seesawing and jumping up or down on every rumor or report. The next week and the ones after that will likely see more of the same and prices could swing either way depending on the OPEC+ meeting, the EU ban and price cap on Russian oil and Russia’s reaction to it, and the developments in China, which, so far, is singlehandedly dragging down oil prices due to fears of weak demand in the world’s top crude oil importer at least in the short term. What Will OPEC+ Do? A violent move down in prices began on November 21 after The Wall Street Journal reported, citing OPEC delegates, that the members of the cartel had informally discussed whether there would be a need for more oil on the market in view of the EU embargo on Russian crude oil imports. The report was immediately denied by OPEC’s top producer Saudi Arabia and another influential member of the cartel, the United Arab Emirates (UAE). “United Arab Emirates denied that it is engaging in any discussion with other OPEC+ members to change the last agreement, which is valid until the end of 2023,” its Energy Minister Suhail al-Mazrouei said on November 21. “We remain committed to OPEC+ aim to balance the oil market and will support any decision to achieve that goal,” the minister added. A week later, as of November 29, speculation is mounting that OPEC+ could consider a cut at its December 4 meeting due to gloomier-than-expected oil demand outlook amid Chinese Covid curbs and protests and slowing economies elsewhere. Considering that oil prices slumped to the lowest level since December 2021 earlier this week, OPEC+ could indeed decide to defend an $80 floor under prices, but it will have a difficult task in predicting how the embargo on Russian crude will impact trade flows and prices. Still, speculation about a cut is gathering momentum. Early on Tuesday, oil prices rose by 2% as market participants weighed a possible new cut and were possibly buying the dip after the rout in recent days. Most traders and analysts polled by Bloomberg on Monday expect further OPEC+ cuts to its headline production target, on top of the 2 million barrels per day (bpd) reduction which began this month. Moreover, the structure of the oil futures market is showing signs of sluggish global oil demand and sufficient supply just ahead of the embargo on Russian oil. Weakening physical demand and plunging spot premiums for Middle Eastern crude could prompt OPEC+ to announce a fresh cut on Sunday. The alliance of OPEC and non-OPEC producers led by Russia regularly denies it’s defending a certain oil price, but it always says that it looks at the market fundamentals. And these days, the physical market is showing signs of weakness and even an oversupply in the short term, considering the contango in both WTI and Brent front-month to second-month futures. Iraq, OPEC’s second-largest producer, signaled this weekend that the OPEC+ meeting would focus on the current market conditions and balances. What Will G7-EU and Russia Do? Several hours after the OPEC+ meeting, the EU embargo and the price cap on Russian oil enter into force. There are so many uncertainties surrounding the measures that analysts cannot predict anything but further volatility in oil prices. The uncertainties range from the exact price of the cap – with the EU still at odds over this five days before the embargo kicks in – to how many vessels Russia would need to place its oil to willing buyers, where ship-to-ship transfers can occur for Baltic exports bound for Asia, how big the ‘dark fleet’ under the radar could be, and last but not least, whether Putin will go through with his promise to stop supplying oil to anyone joining the price cap. “All of these things are so significant to the oil markets that they could whip prices from one direction to the other very significantly,” Michael Haigh, Global Head of Commodities Research & Strategy Societe Generale, told The Wall Street Journal.