Why The Brent Price Plunge Hasn’t Attracted Asian Buyers
Asia continues to prefer buying cheaper Russian oil and hasn’t turned to Brent-linked cargoes from the Atlantic Basin despite the recent 10% slump in Brent oil prices, which has narrowed Brent’s premium over Middle Eastern benchmarks to the lowest in over two years, traders told Reuters. Brent Crude prices have plunged by around 10% since the turmoil in the U.S. and European banking sector roiled global markets. Brent hit a 15-month low early this week before clawing back some losses to trade at $74 per barrel early on Wednesday in Europe. The plunge in Brent has narrowed its premium over the Middle Eastern benchmarks. The Brent-Dubai Exchange for Swaps (EFS), the premium of Brent over the Middle Eastern benchmark Dubai, has narrowed to just $1.40 per barrel this week—the lowest premium of Brent over Dubai in more than two years. Still, Asian refiners haven’t shown an increased appetite for Brent-linked Atlantic Basin crude, including much of the crude sold by West African producers such as Nigeria, Angola, and Congo, according to trading sources who spoke to Reuters. Despite the plunge in Brent prices, Russian crude grade ESPO is still cheaper for Asian refiners than West African crude, traders say. Lower-priced Russian crude is eating into the market share of West African producers. Russia also became the single largest crude oil supplier to China in January and February, overtaking Saudi Arabia, which was the number-one supplier of oil to China last year. As China accelerated the buying of cheap Russian crude oil at discounts to international benchmarks, Chinese imports of crude from Russia jumped by 23.8% year over year to 1.94 million barrels per day (bpd) in January and February 2023, per data reported by China’s General Administration of Customs. Russia beat Saudi Arabia to the top spot of Chinese crude oil suppliers as imports of Saudi crude fell by 4.7% to the equivalent of 1.72 million bpd, compared to 1.81 million bpd for the same period of 2022.
GAIL to implement integrated natural gas pipeline tariff of Rs 58.61/mmBtu
The integrated natural gas pipeline tariff of GAIL (India) would be Rs 58.61 per metric million British thermal unit (MMBtu) on a GCV or gross caloric value basis. The new tariff, which is 45 percent higher than the current tariff, will be effective from April 1, 2023. This comes after the Petroleum and Natural Gas Regulatory Board (PNGRB), in November 2022, introduced an integrated natural gas pipeline tariff to provide access to natural gas in far-flung areas at competitive and affordable rates. The Indian government aims to boost the consumption of natural gas in the country and increase its share in the country’s energy basket from 6.2 percent to 15 percent by 2030. Meanwhile, the spot liquified natural gas (LNG) prices have dropped in the recent period, and almost halved to $14 per metric million MMBtu due to a milder winter and relatively high inventory levels in Europe. This compares to a recent high of $45 per mmBtu. Weak demand in China, one of the largest consumers of natural gas in the world, due to the strict COVID-19 lockdown has also dragged prices lower. Brokerage firm CLSA said in a report that Indian city gas distributors such as Gujarat Gas, Indraprastha Gas Limited (IGL) and Mahanagar Gas Limited (MGL) should see stronger margins in the fourth quarter of the current financial year (FY23) with the recent decline in prices. Indian LNG consumption rebounded by 3.1 percent in January to 65.5 mmscmd (million standard cubic feet per day) compared to the previous month, according to the CLSA report. A 31 percent month-on-month (MoM) cool-off in spot LNG price was to drive a further recovery in February, the report said.
Venezuela’s PDVSA Has $21 Billion In Unpaid Oil Sales To Collect
Venezuela’s state-owned oil firm PDVSA is owed a massive $21.2 billion from its oil sales, or around 84% of its total invoiced cargo shipments of the past three years, documents reviewed by Reuters showed this week. After the U.S. sanctions on its exports, Venezuela started turning in 2020 to little-known oil trade intermediaries after the withdrawal of legacy oil buyers. The value of Venezuela’s oil exports was $25.27 billion between January 2020 and March 2023. But documents provided to Venezuela’s attorney general during an audit of PDVSA contracts showed that the state oil firm could only confirm the receipt of just $4.08 billion of this, according to the documents Reuters has reviewed. The $21.2 billion in payments still due to the company include $3.6 billion of bills that may never be collected after tankers loaded with Venezuelan oil failed to prepay at least part of the value of the cargo. The amount of the accounts receivable also includes an outstanding balance due to Venezuela by Iran under an oil swap deal, according to Reuters. PDVSA is said to have tightened the prepayment rules for its oil after a review of contracts, demanding now cargoes be paid in cash or in goods and services that should be received before loadings can take place, Reuters reported at the end of January, quoting PDVSA documents it had seen. In January, PDVSA suspended most of its crude oil exports and some fuel exports for a review of the contractual terms, a review that was to be conducted under the new head of the company, Pedro Rafael Tellechea. Most recently, PDVSA’s former vice president of supply and trade, Antonio Perez Suarez, and some 20 executives who worked for him have been arrested, sources with knowledge of the matter told Reuters. This week, Tareck El Aissami, Venezuela’s oil minister for three years, resigned amid a corruption probe into PDVSA. Venezuela’s President Nicolas Maduro on Tuesday appointed PDVSA’s Tellechea to serve as the new oil minister.
How OPEC Has Filled America’s Russian Oil Void
A little over a year ago, the United States government banned the importation of Russian crude, petroleum, oils and products of their distillation, LNG coal and coal products. Whereas the United States was nowhere near as dependent on Russian energy commodities compared to the average European nation, it still imported a significant amount of crude, petroleum and unfinished oils, making the task of replacing those supplies in short notice a challenge for energy companies. Indeed, Russia’s U.S. footprint had been steadily growing in the years prior to the invasion. Luckily, producers and refiners in the Middle East and Latin America have been able to step in and fill the void left by the removal of Russian oil and gas. Russian Energy Exports To The U.S. The biggest energy commodity that the U.S. imported from Russia by volume in 2022 was petroleum, with imports increasing for three years straight to a record 673,000 barrels per day. The second biggest import commodity was unfinished oils. Rather than buying finished products such as gasoline or jet fuel from Russia, the U.S. primarily imported unfinished oils, essentially intermediate feedstocks used by refineries and components used to make other liquids. Unfinished oils accounted for nearly 75% of the 474,000 b/d in products the U.S. imported from Russia in 2021, a drop from ~82% in the previous year. Interestingly, the U.S. only imported limited amounts of Russian crude prior to the ban: in 2021, the country bought 80,000 b/d of Russian crude, a considerable drop from the 2010 peak at 269,000 b/d. Valero Energy Corp. (NYSE:VLO), Marathon Petroleum Corp. (NYSE:MPC), Phillips 66 (NYSE:PSX), PBF Energy Inc. (NYSE:PBF) and Delta Airlines’ Monroe Energy subsidiary were the main importers of Russian crude. The U.S. used to buy Russian oil in part to feed refineries that require crude with a higher sulfur content to make fuel at top capacities. Many U.S. refineries were also designed many years ago to use heavier grades of crude when domestic supplies were lower. Filling the Russian Oil Void OPEC has played a big part in filling the void left after the ban. U.S. crude imports from the cartel grew by 101,000 b/d from 2021 to 2022, with flows from Saudi Arabia and Iraq increasing by 100,000 b/d and 92,000 b/d, respectively, as noted by Energy Intelligence. Several Latin American crude producers have also been able to gain market share in the U.S. after Russia’s exit. Brazil, Guyana, Mexico, Colombia and Argentina have all ramped up supplies to the U.S. Interestingly, some U.S. refiners have been able to secure supplies from producers with whom they previously had no business ties. For instance, last year, Monroe Energy imported crude from Argentina for the first time ever after the ban went into effect. It also helps that U.S. downstream capacity has been on a decline over the years with the latest refinery closures taking offline some 1 million b/d in throughput capacity since mid-2019. OPEC member states have also played a crucial role in replacing Russian oil products. The country’s shipments of unfinished oils from OPEC increased by 136,000 b/d to 190,000 b/d from 2021 to 2022, with Saudi Arabia and Iraq again being the top exporters. Several non-OPEC members have also been selling significantly more unfinished oil to the U.S., with Canada’s exports of unfinished oil increasing by 15,000 b/d while Brazil’s exports are up by 12,000 b/d. Overall, the U.S. exported 517,000 b/d of unfinished oil products in 2022, a decrease of 42,000 b/d from the previous year. U.S. Oil Exports Soar It’s interesting to note that exports of U.S. oil products also soared last year after the country became the energy supplier of last resort following Russia’s invasion of Ukraine, with total petroleum shipments exceeding 11 million barrels per day. Particularly, appetite for U.S. diesel remained elevated in Europe and Latin America. The jump in exports across the board played a part in draining inventories in the U.S. and elevating prices. Demand for U.S. oil remains strong in the current year. U.S. oil exports to Europe hit a record high of 2.1 million b/d in March thanks to oil prices falling to multi-year lows. Export demand has, however, helped goose prices of top U.S. crude grades. For instance, the average price for WTI Midland has gained nearly 50% compared to the previous quarter while WTI at East Houston has gained about 30%. Kpler analyst Matt Smith has told Reuters that U.S. exports will remain robust in the coming months as long as the Brent-WTI spread remains wide.
India cuts windfall tax on crude petroleum, hikes it for diesel
The union government on Monday reduced the windfall tax on domestic production of crude petroleum to Rs 3,500 per tonne from Rs 4,400 per tonne. On the other hand, the centre has marginally increased export duty on diesel to Rs one per litre from Rs 0.50 while keeping both petrol and Aviation Turbine Fuel (ATF) exempt from the export levy. The new rate is set to be effective from Tuesday, March 21. Earlier on March 4, the centre had marginally hiked windfall tax to Rs 4,400 per tonne from Rs. 4,350 per tonne whereas the export duty on diesel was slashed to Rs 0.5 per litre. The windfall tax is usually revised every fortnight and the latest update was expected between March 15-16. Prior to this decision, the windfall tax on crude has been reduced by Rs 500 per tonne, diesel by Rs 5 per litre, and ATF by Rs 1 per litre in 2023. The Special Additional Excise Duty (SAED), also known as Windfall tax, is levied by governments when an industry unexpectedly earns large profits. India first imposed windfall profit taxes on July 1 last year. Over the past two weeks, prices of both Brent and Nymex Crude are down over 12 percent. This has led shares of Oil Marketing Companies (OMCs) like Indian Oil, HPCL and BPCL gain in the range of 1-8 percent last week.
Oil companies breathe easy as global prices dip
The three public sector oil refiners, Indian Oil, Bharat Petroleum and Hindustan Petroleum, which control over 90% of the domestic fuel retail business, no longer incur any losses on sale of petrol and diesel, three people aware of the matter said. The average international diesel price – used as the benchmark for domestic pump prices – has fallen sharply by 41% from a peak of $170.92 in June 2022 to $100.88 per barrel this month, bringing relief to state-run oil refiners, even as international crude prices have plunged to a 14-month low spooked by a brewing US banking crisis and fears of global recession. A fall in international crude prices has come at an opportune time with India’s retail inflation above the central bank’s upper tolerance limit of 6% for two consecutive months – January (6.52%) and February (6.44%), one of the people, an industry executive, said. While the Union Budget does not make any assumptions about crude oil prices, India’s chief economic advisor V Anantha Nageswaran said on January 31 that the Economic Survey’s estimate of 6.5% growth in 2023-24 is achievable if crude oil prices stay below $100 a barrel. Public sector OMCs (oil marketing companies) may wait for some time to recover past losses before considering any petrol and diesel price reduction, but domestically produced natural gas may become cheaper from April 1 as government is considering a new pricing formula,” a second person, who works for the government, said. The people mentioned above said that public sector OMCs may recover some of the losses they suffered as they shielded consumers from global energy inflation. IOC, BPCL and HPCL posted a combined loss of ₹186.22 billion in the first three quarters of current financial year. But the impact of the lower oil prices was reflected in the stock market on Monday. IOC shares were up 1.51%, BPCL surged 2.3% and HPCL jumped 2% even as Sensex fell over 360 points or about 0.62%. The ministry of petroleum, IOC, BPCL, HPCL and public sector GAIL India did not respond to email queries. According to a third person, there is a possibility of a sharp decline in domestic gas prices from next month. It is expected that the Cabinet may soon accept key recommendations of an expert panel, including a new gas pricing formula that may reduce the price of domestically produced natural gas by 24% to $6.5 per unit from next month, he said. The current price is $8.57 per unit, measured in million metric British thermal unit (mmBtu). The panel, chaired by Kirit Parikh, which submitted its report on November 30, 2022, proposed a floor of $4 per unit and cap of $6.5 for natural gas produced from old fields mainly operated by state-run Oil and Natural gas Corporation (ONGC) and Oil India Ltd (OIL). The committee, however, spared tweaking gas prices for difficult deepwater fields, such as Reliance-BP’s KG-D6, because of greater risks and higher production costs. Currently, gas produced from such fields costs $12.46 per unit.