Demand For Fuel Tankers Jumps Amid Global Trade Reshuffle
With global trade being upended by sanctions on Russia while Asia and the Middle East add refining capacity at the expense of the U.S. and Europe, orders for fuel tankers have soared so far this year to the highest in a decade. So far into 2023, a total of 38 mid-range fuel tankers have been ordered, the highest number since 2013, per data from shipbroker Braemar cited by Bloomberg. The new global trade order after the EU and G7 embargoes and price caps on Russian oil products, as well as the rise in Asian and Middle Eastern refining capacity while facilities closed in the U.S. and Europe, have created a wider geographical dislocation between new refining capacity and major consuming centers. Ahead of the EU ban on Russian petroleum products, Russia began to divert its oil product cargoes to North Africa and Asia. At the same time, Europe has started to buy more diesel and other fuels from the Middle East, Asia, and North America to replace the lost Russian barrels. Using ship-to-ship (STS) loadings, Russia is shortening the routes for tankers headed to Africa and Asia as Moscow is now banned from exporting fuels to the EU. At the same time, Europe is ramping up imports of diesel from the Middle East and Asia to offset the loss of Russian barrels, of which it imported around 600,000 barrels per day (bpd) before the February 5 embargo took effect. This dislocation of global trade in fuels, with the longer distances tankers are now having to travel to deliver Russian oil products outside Europe, is boosting demand for tankers hauling petroleum products. Moreover, the world’s refining capacity is expected to increase by nearly 3 million bpd by the end of 2023 when at least nine refinery projects are expected to start up in the Middle East and Asia, the EIA estimated last year. “The main, structural shift in the refinery landscape that will support refined-product shipping demand in the medium- and long-term is the geographical dislocation between new refineries and major consumers,” Alexandra Alatari, a senior analyst with Braemar, told Bloomberg.
How Oil Prices Have Reacted To Financial Crises Through History
Once infrequent, financial crises that require dramatic rescues are quickly becoming the norm. Each of the last four U.S. administrations has grappled with an economic crisis serious enough to warrant government intervention. The current banking crisis comes just three years after the Covid-19 pandemic triggered global supply chain disruptions, which itself came a little more than a decade after the 2008 financial crisis. Unfortunately, energy is one of the sectors that have historically been hammered the most whenever the economy ails. Economic downturns including recessions tend to have a pronounced negative impact on the oil and gas sector, leading to steep decline in oil and gas prices as well as contraction in credit. Falling oil and gas prices means lower revenues for oil and gas companies and tight credit conditions that result in many explorers and producers paying higher interest rates when raising capital, thus crimping earnings even more. Whereas quick action by the U.S. government appears to have stabilized the banking sector, some experts are warning that we are not out of the woods yet. Former PIMCO chief Mohamed El-Erian has criticized the Federal Reserve’s delayed action to control inflation, and says the central bank’s “least bad” option is to immediately pause its interest rate increases,”The degree of economic contagion that resulted from this mishandled interest rate cycle is going to be significant because there are two different drivers here. One is banks themselves getting more conservative and two is banks expecting regulation to get tighter. The regulators and the supervisors have been embarrassed and the response has always been tighter in regulation even though this is a failure of supervision more than a failure of regulation,” El-Erian has told CNBC. Let’s examine how energy markets have reacted to past economic and financial crises. The Great Depression of 1930 The opening of giant oil fields in the United States in the years heading into the Great Depression of 1930 led to an enormous glut and sent prices crashing to just 13 cents per barrel (~$5.40 today adjusted for inflation). In October 1929, U.S. commercial crude stocks hit a staggering 545 million barrels, thanks to the discovery of several massive oil fields in Oklahoma, Texas, the rest of the Southwest and California. Back then, that was the equivalent of 214 days of production; for some perspective, U.S. crude oil stocks were 845.27M for the week ending March 24, equivalent to ~42 days of production. The first gusher came online in 1926 in Oklahoma’s Seminole field, yielding 136 million barrels annually, or 10% of the entire U.S. oil output. A deluge of new discoveries in Oklahoma City, Yates field (West Texas), Van (East Texas), Signal Hill in California, and the super-giant Long Beach Oilfield within Greater Los Angeles quickly put an end to the peak oil fears prevalent in the early 1920s. By the summer of 1931, East Texas field alone was pumping 900,000 barrels per day from approximately 1200 wells, up from virtually zero just a few months prior. Unfortunately, too much oil flooded the markets and, compounded with low demand during the depression, triggered a dramatic oil price crash, with prices plunging from $1.88 per barrel in 1926 to $1.19 in 1930 and eventually 13 cents a barrel in the throes of the depression in July 1931. Oil Shock of 1973/74 The oil shock of 1973/74 is regarded as one of the most important oil crises after an oil embargo by Arab producers against the U.S. deepened the financial crisis of the early 1970s. In this case, it was high oil prices that actually triggered a severe economic crisis. On October 19, 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) slapped an oil embargo on the United States in response to President Nixon’s request to Congress to make available $2.2 billion in emergency aid to Israel for the Yom Kippur War. Consequently, OAPEC nations stopped all oil exports to the U.S., and started production cuts that lowered global oil supply. These cuts nearly led to a supply crunch and quadrupled the price of oil to $11.65 a barrel in January 1974 from $2.90 a barrel before the embargo. The embargo was eventually lifted in March 1974 amid disagreements within OAPEC members regarding how long it was to last. As the then Fed chair Arthur Burns observed, the embargo and manipulation of oil prices had come at most inopportune time for the United States. By the middle of 1973, prices of industrial commodities were already rising at more than 10% p.a. Industrial plants were operating at virtually full capacity leading to deep shortages of industrial materials. Meanwhile, the U.S. oil industry lacked excess production capacity, leading to wide oil deficits and fuel shortages everywhere. To make matters worse, OPEC was gaining significant market share while non-OPEC sources were in deep decline. This allowed OPEC to wield much more power and influence over the price setting mechanism in global oil markets. Following the devaluation of the dollar, OPEC nations resorted to pricing their oil in terms of gold and not USD, leading to a wild gold rally from $35 an ounce to $455 an ounce by the end of the 1970s. Ultimately, the oil crisis of 1973 and the accompanying inflation triggered a U-shaped recession characterized by a prolonged period of weak growth and economic contraction. The Oil Price Crisis of 1998–9 The oil price crisis of 1998/99 was the opposite extreme of what Americans who had lived through the oil price surges during the 1970s were accustomed to, with the Asian financial crisis triggering a dramatic decline in prices. The collapse of the Thai baht in the summer of 1997 marked the beginning of the oil price crash and led to the stock markets crashing 60%. Consequently, oil demand in Asia, a pillar of global demand, pulled back sharply with demand in other parts of the world also slumping. To exacerbate matters, OPEC production continued unhindered at a time when Iraqi oil had returned to global markets for
Sanjay Kumar going to be next Director (Marketing) of GAIL
Sanjay Kumar is set to be next Director (Marketing) of GAIL (India) Limited, a Mahartana PSU under the Ministry of Petroleum & Natural Gas (MoPNG). He has been recommended for the post by the Public Enterprises Selection Board (PESB) panel on Wednesday. Presently, he is serving as Executive Director in the same organisation. Kumar has been recommended for the post of Director (Marketing) of GAIL from a list of 10 candidates who were interviewed by the PESB panel in its selection meeting held on March 29. Out of 10 candidates, six candidates were from GAIL and one each from Bharat Sanchar Nigam Limited (BSNL), Indian Oil Corporation Limited (IOCL), Indian Railways Traffic Service (IRTS) and Hindalco Industries Limited. Director (Marketing) of GAIL, Kumar will be a member of the Board of Directors and will report to the Chairman and Managing Director (CMD). He will be heading the Marketing Division of the company. He will be primarily responsible for marketing operations of the company, including formulation and implementation of marketing policies keeping in view company’s profitability and objectives.
Concerns over long-term growth cast shadow on Petronet LNG
Although the near-term prospects of Petronet LNG (Petronet) look encouraging, growth, in the long run, appears a bit grim. The stock performance has also been underwhelming. The company’s scrip has generated a return of a mere 2 percent in the past month and 4 percent YTD. In the past three years, it is up 16 percent. Brokerage house Sharekhan said the stock offers a decent dividend yield of 5-6 percent, and it trades at an attractive valuation of 9.4 times its FY24 EPS or earnings per share and 8 times of FY25 EPS given earnings visibility and RoE (return on equity) of 22 percent. About the company Petronet imports, stores and sells regasified liquefied natural gas (LNG) in the domestic market. It accounts for around 40 percent of gas supplies in the country and its ports handle around two-thirds of LNG imports.