U.S. Natural Gas Prices Plummet Despite Inventory Drop
Natural gas prices in the United States have plunged and remained low despite a sharp drop in inventories at the end of 2022. Reuters’ John Kemp reported today that working gas stocks in underground storage in the U.S. had ended last year 9% below the five-year average for that time of the year, falling by three percentage points in just two weeks. The reason for the sharp slump was the cold spell that gripped much of the United States, driving much higher demand for gas. Prices, however, have remained low thanks to fast growth in production, which has outpaced both consumption and export growth, Kemp added. As a result of these developments, gas prices have dropped by as much as 50 percent in less than a month, Bloomberg reported this week. The decline is expected to continue this year as well as production growth continues to outpace demand growth. “The market does not need this incremental growth and will ultimately need to force the curve lower to push rigs out of the market,” a TPH analyst said this week, as quoted by Bloomberg. Front-month gas futures on Wednesday were cheaper than $3.70 per mmBtu, down from $9.60 per mmBtu in August last year, Reuters’ Kemp noted. Yet some forecast continued price volatility because of the war in Ukraine and the Western sanctions on Russia. “Alternative supplies are being developed, but it will take years for Europe to replace Russian gas, so price volatility is likely to remain a feature of the market for some time,” Michael Rosen, chief investment officer at Angeles Investments told Barron’s this week. Morgan Stanley is more upbeat, noting weaker gas demand from Europe thanks to the warm winter, which means more U.S. LNG would be freed to go to China, where the reopening of the economy will feature higher energy demand. “We see a much more manageable global supply/demand outlook for this winter and the next,” the bank’s analysts said in a note, quoted by Bloomberg.
India sets hydrogen, ammonia consumption targets for some industries -govt
India has set green hydrogen consumption targets for some industries, so as to generate demand for cleaner fuel in its quest to reach net zero by 2070, the government said on Friday, as it unveiled its policy for green energy. One of the world’s biggest emitters of greenhouse gases, India approved a plan of incentives worth more than $2 billion last week to develop a green hydrogen production capacity of 5 million tonnes a year by 2030. Asia’s third-largest economy wants to use green hydrogen to replace grey hydrogen, produced using gas, as it moves to decarbonise sectors such as oil and fertilisers. Green hydrogen is a zero-carbon fuel made by electrolysis, using renewable power from wind and solar to split water into hydrogen and oxygen. India’s top refiner Indian Oil Corp, top power utility NTPC Ltd and conglomerates including Reliance and Adani group have announced plans to build green hydrogen projects. To gradually build a hydrogen-powered shipping lines, India has set a goal for its largest fleet operator, the state-run Shipping Corp of India, to retrofit at least two ships to run on green hydrogen-based fuels by 2027. All the state-run oil and gas companies that charter 40 vessels for fuel transport will also have to hire at least one ship powered by green hydrogen each year from 2027 to 2030. “Green ammonia bunkers and refueling facilities will be set up at least at one port by 2025,” the government said in its policy document. “Such facilities will be established at all major ports by 2035.” India aims to end imports of ammonia-based fertiliser by 2034 to 2035, replacing them with locally produced green ammonia-based soil nutrients. The government will also invite bids to set up two domestic green hydrogen-based urea and diammonium phosphate plants. The policy also requires new steel plants to be capable of operating on green hydrogen.
China Books Its Second Annual Oil Import Decline In A Row
China imported 10.17 million barrels of crude oil daily last year, down by almost a percentage point from 2021. This was the second annual decline in imports in a row after 2021 also saw lower imports than 2020. Citing data from the Chinese customs authorities, Reuters reported today that the drivers behind the decline were weaker demand and lower refining margins. In the last quarter of the year, however, Beijing started issuing higher fuel export quotas and imports picked up. Seen as a move to support the Chinese refining industry, the higher fuel export quotas have continued this year as well, spurring expectations of higher oil demand from the world’s biggest importer and pushing prices up. Crude oil imports in December came in at 11.3 million barrels daily the report noted, which was the third-highest monthly number for 2022 and was the result of more buying of Saudi oil as the Kingdom cut prices for Asian clients. On the headwind side, Covid-related lockdowns sapped potential demand growth last year but they also gave reason to forecasters to expect a strong rebound this year, the way global demand for oil rebounded after the 2020 lockdowns. Meanwhile, the country’s refiners continued buying discount Russian and Iranian oil, including new Russian oil grades that were until recently largely shipped to Europe. Along with India, China has become Russia’s largest oil client. Despite the decline in oil imports for 2022, China has been one of the main drivers behind oil prices during that year. Every lockdown announcement weighed on prices and every report of the pending reopening of the country pushed the benchmarks higher. This year, too, China is at the top of analysts’ lists of factors that will influence the movement of oil prices. There is a consensus that if China’s economy reopens fully, Brent could shoot up above $100 a barrel again, with some, like hedge fund manager Pierre Andurand, seeing it as high as $140 per barrel if that happens.
Where Are Oil Prices Heading In 2023?
At the beginning of 2023, several factors are at play in determining the short and medium-term trend in oil prices this year. Supply and demand concerns, tightening monetary policy globally, expectations of a material slowdown in economic growth and possible recessions, and China’s reopening with a Covid exit wave are all impacting crude oil prices. During the first week of the year, oil prices tumbled by 9% in the first two trading days for the worst start to a year since 1991. The price of Brent Crude dipped to below year-ago levels for the first time in two years, possibly suggesting that “broader inflation has peaked and could fall rapidly in the coming months,” Reuters columnist Jamie McGeever notes. The annual change in the U.S. benchmark, WTI Crude, has also turned negative several times over the past two months. The base effects, that is, prices and the inflation rate compared to the same time last year, are falling and could signal deflation in energy commodities, which could intensify the drop in broader inflation to closer to the Fed’s 2% target, according to McGeever. Still, the Fed isn’t abandoning its hawkish stance and determination to fight inflation which is “persistent” and at an “unacceptably high level,” according to the minutes of the Federal Open Market Committee (FOMC) from the December meeting released this week. “No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023. Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time,” the Fed said. “Participants concurred that the inflation data received for October and November showed welcome reductions in the monthly pace of price increases, but they stressed that it would take substantially more evidence of progress to be confident that inflation was on a sustained downward path,” according to the FOMC minutes. This week, Federal Reserve Bank of St. Louis President James Bullard said that the prospects of a soft landing for the U.S. economy have increased compared to the autumn of 2022, thanks to a strong and resilient labor market. “The policy rate is not yet in a zone that may be considered sufficiently restrictive, but it is getting closer,” Bullard said in a presentation on Thursday. Nevertheless, concerns about a recession persist. The current weak oil demand in both the U.S. and China adds to the immediate-term bearish outlook on oil prices. “Oil is trying to rally but demand concerns are keeping the gains small.? The Saudis are slashing prices as the short-term crude demand outlook seems like it won’t quite get a major boost from a robust China reopening,” Ed Moya, Senior Market Analyst, The Americas, at OANDA, said on Thursday when oil prices inched higher after the massive selloff on Tuesday and Wednesday. However, the weekly EIA report indicated that implied gasoline demand fell last week by the most since March 2020, and crude oil and distillate demand posted significant declines from a week ago, Moya noted. ING strategists said on Thursday, “The oil market is looking better supplied in the near term and risks are likely skewed to the downside. However, our oil balance starts to show a tightening in the market from the second quarter through to the end of the year, which suggests that we should see stronger prices from 2Q23 onwards.” According to broker PVM Oil, “There is no doubt that the prevailing trend is down, it is a bear market.” “Readily available Russian crude also played its part in the continuous move lower and so did the co-ordinated SPR release. The question now is whether these forces will be at play throughout 2023 and whether the cheapening of oil prices will be the main theme this year.”
Indian Oil Officers’ body sends SOS to Puri against abolishment of Director (R&D) post
The Indian Oil Officers’ Association has written a letter to Hardeep Singh Puri, Minister for Petroleum and Natural Gas, urging the minister to review and disapprove the proposal to abolish the post of Director (R&D) at Indian Oil Corporation. According to the letter accessed by PSU Watch, the officers’ association has questioned the rationale behind the decision to do away with the top-notch post by arguing that it acts as an important interface between the industry and the academia and a Director-level post ensures representation from the R&D department on IOC’s Board of Directors. The association has said that the Indian Oil R&D Centre has been engaged in indigenising technologies and products that give cutting edge advantage to India as a country and reduce the country’s dependence on foreign technologies for the last 50 years. “This progressive and delivery was only possible through the commitment and untiring sprit of the past and the present workforce belonging to the scientific community operational at R&D Centre,” said the letter. “The post over the past two decades not only acted as an interface between industry and academia but also represented country on various international forums highlighting the technical prowess of India,” it added.
India mulling over oil purchase from Guyana in long-term deal
At a time of volatility in the energy markets due to geo-political situations, India is exploring a long-term oil deal with Guyana. In a statement on Thursday, the Union government informed that the Union Minister of Petroleum and Natural Gas, Hardeep Singh Puri, and the President of Guyana Mohammad Irfaan Ali discussed government-to-government cooperation in Guyana’s hydrocarbons sector. The statement came out after Union Minister met with Guyana’s President on Thursday. It also added that India is looking towards participating in the oil and gas exploration sector of the South American nation. The move is seen in coherence with India’s efforts to diversify its oil imports to manage global volatility in a much better way. In December last year, Russia replaced Iraq as the top supplier of oil for India, accounting for almost one-fourth of India’s oil imports. After the Russian invasion of Ukraine, the western countries led by the United States imposed several sanctions against Russia, restricting its trade with the world. India was also attacked at multilateral levels for purchasing Russian oil at discounted rates. India also chose to stay out of the price cap which Western countries imposed on Russian oil. Union Minister of External Affairs, S. Jaishankar said that India was not consulted in the decision on the price cap and the country will never sign into what others have cooked up. On Tuesday, Union Minister for Coal and Petroleum also spoke on the vision of India for the energy sector. The country is aiming to contribute 25% of global fuel demand by 2040 and it targets to achieve 20% ethanol blending in petrol by 2025.
India buying Russian crude oil is good economics, don’t bring politics into it
“Indian refiners buy crude oil from Russia because it is good economics,” says energy expert Narendra Taneja, who also said that politics should not be brought into those deals. “If Russian oil is available at attractive prices, why should not an Indian or for that matter any refiner buy it?” a report by Russian news agency TASS as saying. A price cap has been imposed by G7 nations on Russian oil. Following which India, which is not a member of the group, has become one of the main outlets of seaborne crude oil since February last year after Vladimir Putin began invasion of Ukraine For two months in a row, Russia, in November remained the largest oil supplier of India, with the country shipping 909,400 barrels per day (bpd) of crude during the month. According to energy cargo tracker Vortexa, in October, Russia supplied over 902,740 bpd of oil, which was the highest among all exporters to India. Russia, on both the months, remained ahead of Iraq and Saudi Arabia in its oil export to India. In November, Russian oil accounted for 21 per cent of India’s total imports of 4.29 million bpd, the data showed. Last month, India’s foreign minister Dr S Jaishankar strongly defended imports of crude oil from Russia amid the ongoing Ukraine conflict. He said India’s procurement was mere one-sixth of the European purchase in the past nine months. His comments came at the backdrop of a G7 price cap on Russian crude at $60 a barrel came into effect. Jaishankar also said that Europe can’t make choices to prioritise its energy needs while asking India to do something else, asserting that discussions between New Delhi and Moscow to expand the trade basket started much before the Ukraine conflict started in February. “I understand that there is a conflict situation (in Ukraine). I also understand that Europe has a point of view and Europe will make the choices it will make that is Europe’s right. But for Europe to make choices which prioritises its energy needs and then ask India to do something else… ,” he said. In November last year, the Indian minister assured that his country would continue to purchase from Russia even as the US claimed that New Delhi was taking advantage of the price cap that the G7 nations imposed on Russia from 5 December.
G7 Oil Price Cap About To Get More Complicated
About a month ago, the group of Seven (G7) coalition imposed a price cap on Russian oil with the objective of reducing Russia’s oil revenue which goes to fund its war machine. G7–which consists of the United States, the 27-nation European Union, Canada, Australia and Japan– set at a maximum price of 60 USD per barrel for Russian crude oil with the provision that the cap can be adjusted in the future in order to respond to market developments. This cap is to be implemented by all members of the Price Cap Coalition via their domestic legal processes. But things are about to get murkier as the G7 contemplates tightening the noose further on Russia’s energy revenue. Beginning on February 5, the G7 will impose price caps on Russian products, such as diesel, kerosene and fuel oil in a bid to further cut Moscow’s revenue from energy exports and its ability to finance its war on Ukraine. Furthermore, the Group now plans to set two price caps on Russian refined products in February; one for Russian oil products trading at a discount to crude, and a second for Russian crude trading at a premium. That said, capping Russian oil product prices is likely to prove a much more onerous task than capping its crude, for the simple reason that there are many more oil products and their prices depend more on where they are purchased, not produced. For instance, diesel and kerosene tend to trade at a premium to crude, while fuel oil typically sells at a discount. Is The Oil Price Cap Working? And now the million-dollar question: is the current oil price cap on Russian crude really working as intended? Well, it depends on who you ask. The Kremlin came out on Wednesday and claimed it had not yet seen any cases of price caps on Russian oil. “As far as the losses are concerned, no one has especially seen the caps yet,” Kremlin spokesman Dmitry Peskov told Reuters in a daily briefing. Hordes of analysts have contradicted the Kremlin’s stance, saying that the oil price cap is definitely hurting the country. Currently, Russian flagship Urals crude blend is trading below the price cap level of $60 per barrel. A Finnish researcher recently told Bloomberg that the price cap on Russian oil is already costing the Kremlin €160 million ($172 million) a day, and could rise to $280 million a day when the cap is extended to refined products from Feb. 5. Last month, even Russian Finance Minister Anton Siluanov said that the country’s budget deficit in 2023 might exceed the expected 2% of GDP as the oil price cap takes a hit on export income. This marked the first time a Russian official acknowledged that the $60 per barrel price cap imposed on Russia by Europe and G7 nations will negatively impact its economy. Siluanov said that the country would tap debt markets to bridge the deficit. Russia expects to use just over 2 trillion roubles ($29 billion) from the National Wealth Fund (NWF) in 2022 as total spending exceeds 30 trillion roubles, above the initial budget. In the same month, Russia’s Central Bank governor Elvira Nabiullina said that the country’s economy was expected to contract three percent in 2022, a sharp turnaround from its growth in 2021 citing “worsening trade conditions.” She added that Russia’s cash flows were expected to weaken considerably in 2023 as oil and gas sales to Europe plunge. Meanwhile, Ukraine says it expects that the EU embargo on Russian oil and petroleum products should cut Russia’s profits by at least 50%. “We expect the collapse of profits from oil and gas exports to be at more than 50%, precisely because of the introduction of the EU embargo on oil and petroleum products and the introduction of price restrictions. Oil and gas account for 60% and 40% of federal budget revenues. We expect that Russia’s revenues will fall below the critical level of $40 billion per quarter,” Yuliya Svyrydenko, First Deputy Prime Minister and Minister of Economy of Ukraine has said. She has expressed hope that plunging profits will make it more difficult for Russia to continue waging an expansive war. Last month, leading shipping journal Lloyd’s List reported that seven loaded Suezmax vessels that are fully compliant with the $60 per barrel price cap and its requirements had sailed from Russian waters. According to the journal, checks revealed that all seven vessels had secured insurance with International Group P&I clubs, which requires proof of compliance with the G7 cap of $60 per barrel before marine insurance can be provided.