Russia will…’: Ex-CEA Kaushik Basu explains implications of oil supply cut by OPEC+
A week after OPEC+ announced cuts in oil supply, India’s former chief economic advisor Kaushik Basu on Sunday said the move will help Russia, which is facing severe sanctions from the US and Europe for its military attack on Ukraine. Last Sunday, Saudi Arabia and other members of the OPEC+ oil producers announced voluntary cuts to their oil production. Saudi Arabia would be cutting its oil output by 500,000 barrels per day (bpd) from May until the end of 2023. The production cut is aimed at pushing the crude prices up, which had been declining from nearly $120 in July last year to $70 in the first week of April. On Sunday, Basu said much was being written on OPEC+’s new curb on oil supply and how it would fuel inflation. “The more important implication of this is by pushing up the price it will offset the Western sanction on buying Russian oil,” the economist said. “Russia will sell less but earn more per unit. Total earnings may rise,” Basu, who teaches economics at Cornell University, said. Basu was the Chief Economist of the World Bank from 2012 to 2016. He also served as India’s chief economic advisor from 2009 to 2012 under then Prime Minister Manmohan Singh. In a statement on April 3, the major oil-producing countries said the move of cutting supply was “a precautionary measure aimed at supporting the stability of the oil market”. Saudi Arabia, which is the de-facto leader of the cartel, announced the highest supply cut. The move will also help Moscow from avoiding the pain inflicted on it by the US and Europe by capping the prices of its oil. In December last year, G7 members announced a price cap on Russian oil at $60 per barrel. This price cap applies to crude oil, petroleum oils, and oils obtained from bituminous minerals which originated in or were exported from Russia. However, despite the cap, India and Japan have been buying Russian oil above the set prices. Japan got the US to agree to the exception, saying it needed it to ensure access to Russian energy, The Wall Street Journal reported on April 2. The report further said while many European countries have reduced their dependence on Russian energy supplies, Japan has stepped up its purchases of Russian natural gas over the past year.
Russia destroys competition in India’s lucrative oil market; controls over one-third share
India’s imports of crude oil from Russia hit a record high of 1.64 million barrels per day in March, doubling the purchases from its traditional top oil supplier, Iraq, according to a PTI report, which cited data from energy cargo tracker Vortexa. For the last six months, Russia has been India’s top supplier of crude, providing over one-third of all oil that India imported during the period. Indian refiners continue to lap up Russian crude available at a discount to other oil grades. Since the Russia-Ukraine conflict began in February 2022, Russia’s share of India’s imports has risen from less than 1% to 34%. While purchases from Russia rose marginally from February, the growth has slowed, and India’s import of Russian oil may have plateaued, the report added. Refiners’ purchases of medium-sour Russian Urals have remained steady in March, and the increase in imports is attributed to higher purchases of sweeter grades like Novy Port Light. Vortexa’s head of Asia-Pacific analysis, Serena Huang, told PTI that domestic refiners have room to increase their purchases of sweeter grades in the interest of maintaining refining runs high and diversifying its crude sources. The plateauing of India’s imports of Russian Urals could indicate a soft limit on its ability to take in more sour crude, given its need to fulfill its term contracts with Mideast Gulf producers. However, Russia is selling record amounts of crude oil to India in a bid to bridge the gap after the European Union stopped imports in December amid Western sanctions on Moscowa. Indian refiners are using UAE’s dirham to pay for oil that is imported at a price lower than USD 60. According to Vortexa, Saudi Arabia was India’s second-largest supplier of crude oil in March, selling 986,288 bpd, followed by Iraq with 821,952 bpd sales. The UAE overtook the US to become the fourth-largest supplier at 313,002 bpd, while the US supplied 136,464 bpd, down from 248,430 bpd in February. Year-on-year, imports from Iraq have fallen from 1,139,880 bpd in March 2022 to 821,952 bpd this year, and the biggest drop has been in the US imports – from 419,071 bpd to 136,464 bpd. Saudi Arabia is selling more oil as compared to 872,683 bpd it sold in March last year, the report further added.
A greener fuel alternative: LNG to transform the trucking industry in India
Governments across the world have recognised that reducing carbon emissions is essential to curtail global warming. Globally, Logistic contributes to 14%-15% of carbon emissions and in that the contribution of heavy-duty trucking is about 90%. Hence, there has been the need for alternative means of green energy that will guard the future of the planet by reducing dependence on fossil fuels in transportation sector. Thus, sustainable mobility has been a buzz word for some time now. While there has been a lot of research on the best technology that can help the industry turn a greener leaf, there emerged one answer, which is Liquefied Natural Gas or LNG. One of the main causes of hazardous emissions is heavy industrialization, which includes the logistics and transportation sector, ergo, heavy duty trucking. The trucking industry is one of the most significant polluters, producing up to 450 million TPA of CO2, as well as significant noise, particulate matter, and pollutants each year, clogging cities and endangering public health. Therefore, the whole idea of LNG trucks is poised to upend the sector and hasten the shift to “green transportation.” To put the figures in perspective, compared to diesel trucks, it emits up to 28% less carbon dioxide (CO2) and up to 30% less noise. It can also raise an organization’s scores on the environmental social governance meter. When appropriately utilised with the trained drivers, LNG truck has the potential to reduce particulate material (PPM) by up to 91%. It not only creates sizeable reduction in the quantities of sulphur and nitrogen oxides, and other substances that are detrimental to the earth’s atmosphere but also does not release soot, dust, or other particles. LNG has a lower carbon content than other types of fossil fuels. It is clear, odourless, and colourless. To combat the rapidly rising climate change, LNG is an immediate, versatile, mature, and scalable solution to make the long-haul trucking industry sustainable. It’s a cleaner fuel and greener fuel, which reduces sulphur oxide (SOX) up to 100% and nitrogen oxide (NOX) up to 59%. International success of LNG Trucks LNG Trucks has seen a great deal of success in the Chinese and European markets. The EU’s alternative fuel plan is prioritised by using an established technology for each necessity. While there are other practical and established options for short-distance transportation in metropolitan areas, LNG is the only practical, mature, viable and established option for long-distance travel. According to data from the European Alternative Fuels Observatory, it is estimated that the LNG-compatible fleet would increase at least by 3% annually. The International Energy Agency predicts that China would lead the world in the adoption of zero- and low-emission trucks, including LNG vehicles. According to sources, new regulations are also anticipated to aid in the replacement of up to 1 million heavy-duty trucks there. Policy push India is upbeat when it comes to LNG’s potential to lessen the consequences of climate change as it adheres to the Paris Agreement. India wants to transition to a gas-based economy by 2030, increasing gas’s current share of the energy mix from 6% to 15%. LNG is a vital cog to fulfil the plan. Additionally, there are existing LNG terminal infrastructure in place to handle import demands. India intends to establish 1,000 LNG retail outlets over the next five years, which would cost US$1.3 billion. It demonstrates how the country is placing more of an emphasis on alternative fuels, which is promoting the development of LNG mode.
India’s Russian oil imports now double of Iraq
India’s imports of crude oil from Russia touched a new high of 1.64 million barrels per day in March and is now double of the purchases from Iraq – the nation’s traditional top oil supplier. But the purchases appear to have plateaued as growth has slowed. Russia continued to be the single largest supplier of crude oil, which is converted into petrol and diesel at refineries, for a sixth straight month by supplying more than one-third of all oil India imported, according to energy cargo tracker Vortexa. Refiners continue to snap up plentiful Russian cargo available at a discount to other grades. From a market share of less than 1 per cent in India’s import basket before the start of the Russia-Ukraine conflict in February 2022, Russia’s share of India’s imports rose to 1.64 million barrels per day in March, taking a 34 per cent share. The purchases from Russia in March were double of 0.82 million barrels per day (bpd) of oil bought from Iraq, which has been India’s top oil supplier since 2017-18.
The Biggest Losers Of $100 Oil
The world’s biggest oil exporters will benefit from the surprise OPEC+ production cut, but if oil prices move higher from here and reach $90 or even $100 a barrel, as some analysts predict, oil importers will start to feel the pain. Brent Crude bounced back to $85, and WTI Crude hit $80 per barrel again, as the latest 1.66 million bpd of production cuts from nearly half of the OPEC+ members from May through December are expected to tighten the market in the second half of the year. Analysts, who had just slashed price forecasts in the wake of the banking sector jitters in mid-March, raised their price estimates and started talking about $100 oil again. Oil at $90 and $100 will hit the economies of the large oil importers. A renewed rise in energy prices could keep inflation in the U.S. and Europe stubbornly high and further complicate interest-rate policies of the central banks, which have just signaled that the end of the hike cycle may be near. In terms of state finances, large oil importers will not be equally hit by higher oil prices. The United States will see higher gasoline prices, but it will not be the biggest loser, at least financially, from the OPEC+ cuts. In the U.S., the loser is the Biden Administration, which has spent nearly a year trying to persuade Americans that the President has helped to lower prices at the pump, which hit a record high in early June when oil prices were at $100 per barrel in the spring of 2022 following the Russian invasion of Ukraine. “The oil market has had a few days to digest the OPEC news and speculate about the reason. This has led to the price of oil stabilizing for now,” Andrew Gross, AAA spokesperson, said this week, “but the cost of oil accounts for more than 50% of what we pay at the pump, so drivers may not catch a break at the pump any time soon.” The national average gasoline price hit $3.54 per gallon this week, the highest level since Thanksgiving, said Patrick De Haan, head of petroleum analysis at fuel-saving app GasBuddy. Increases will likely continue for the next couple of weeks with a climb to around $3.65/gal likely for now, he added. In terms of a hit to government finances from the OPEC+ cuts, the biggest losers will be Asia’s developed economies heavily dependent on oil imports, as well as emerging markets in south and Southeast Asia, which not only rely on imported energy but also have weak fiscal balances. Those are the mature economies of Japan and South Korea, and the emerging markets India and Pakistan in south Asia, as well as Argentina, Turkey, and South Africa, according to Pavel Molchanov, managing director of private investment bank Raymond James. The OPEC+ cuts and a subsequent run in oil prices to $100 is “a tax on every oil importing economy,” Molchanov told CNBC. “It’s not the U.S. that would feel the most pain from $100 oil, it would be the countries that have no domestic petroleum resources: Japan, India, Germany, France,” he added. According to Henning Gloystein, director of Eurasia Group, India’s consumption – currently at records – could also suffer in case prices rise further because even the discounted Russian crude, which India buys en masse, would see higher prices if international benchmarks make a run at $100. Traders involved in Russian oil trades told Reuters this week that after the OPEC+ cuts announcement, the price of Russia’s flagship Urals grade topped the $60 per barrel price cap level set by the G7. “If oil goes up further, even the discounted Russian crude will start to hurt India’s growth,” Gloystein told CNBC. Importing countries with weak currencies and weak state finances will also feel the pain due to the fact that oil is priced in U.S. dollars, analysts say.