Windfall tax reimposed on local crude oil; duty on diesel exports scrapped
India Tuesday reimposed windfall tax on domestically produced crude oil at ₹6,400 per tonne and scrapped export duty on diesel. The export duty exemption for petrol and aviation turbine fuel (ATF) will continue. In the last revision the Centre had reduced the windfall profit tax on domestically produced petrol to zero while it has halved the levy on the export of diesel to ₹0.50 per litre. The duty will be effective from April 19, according to a notification issued by the Central Board of Indirect Taxes and Customs. In the last revision the government had cut the tax on the export of diesel to ₹0.50 per litre from ₹1. The latest revision comes on the back of rise in oil prices, which have climbed up following a surprise cut in production Opec plus. The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.
India and China snap up Russian oil in April above ‘price cap’
India and China have snapped up the vast majority of Russian oil so far in April at prices above the Western price cap of $60 per barrel, according to traders and Reuters calculations. That means the Kremlin is enjoying stronger revenues despite the West’s attempts to curb funds for Russia’s military operations in Ukraine. A G7 source told Reuters on Monday the Western price cap would remain unchanged for now, despite pressure from some European Union countries, such as Poland, to lower the cap to increase pressure on Moscow. The advocates of the cap say it reduces revenues for Russia while allowing oil to flow, but its opponents say it is too soft to force Russia to backtrack on its activities in Ukraine. The latest data from Refinitiv Eikon suggest Russian Urals oil cargoes that loaded in the first half of April are mostly heading to India’s and China’s ports. India accounts for more than 70% of the seaborne supplies of the grade so far this month and China for about 20%, Reuters calculations show. Meanwhile, lower freight rates and smaller discounts for Urals against global benchmarks nudged the daily price of the grade back above the cap earlier in April from a period of trading below. India and China have not agreed to abide by the price cap, but the West had hoped the threat of sanctions might deter traders from helping those countries buy oil above the cap. Average discounts for Urals were at $13 per barrel to dated Brent on a DES (delivered ex-ship) basis in Indian ports and $9 to ICE Brent in Chinese ports, according to traders, while shipping costs were $10.5 a barrel and $14 a barrel respectively for loadings from Baltic ports to India and China. That means the Urals price on a free on board (FOB) basis in Baltic ports, allowing about $2 per barrel of additional transport costs, has been slightly above $60 per barrel so far in April, Reuters calculations show. Shipping costs have come down significantly in recent weeks as Russian port ice conditions eased and more tankers became available. Freight rates for Urals cargoes loading in Baltic ports for delivery to India have eased to $7.5-$7.6 million from $8-$8.1 million two weeks ago, two traders said. The cost of tanker shipment from Baltic ports to China was $10 million, down from nearly $11 million a couple of weeks ago, they added. During winter, freight costs for Urals cargoes jumped above $12 million for both India and China. Lower freight costs suggest Russian oil suppliers have secured enough vessels even given long distances, the traders said. Meanwhile, output cuts announced by the OPEC+ group of oil producers at the start of April have also boosted values for various grades around the world, including Urals. Urals prices in Indian ports had traded at a discount of $14-$17 per barrel to dated Brent on a DES basis in March, while the price at Chinese ports was around $11 per barrel against ICE Brent.
Iraq To Restart Kurdistan Oil Exports This Week
Iraq will restart the export of crude oil from the Kurdistan region by the end of the week, the country’s Prime Minister, Mohamed Shia al-Sudani, said, as quoted by Rudaw. The news follows comments made earlier this week by the deputy speaker of the Iraqi parliament, who said Erbil and Baghdad had settled most of their differences with regard to oil exports from Kurdistan, and all that was left was hammering out some details. “Today or tomorrow, we will go to sign the agreements with SOMO and the oil companies to resume exports,” PM Al-Sudani told Rudaw, adding that the resumption of exports could begin before the end of the week. Kurdistan’s crude oil exports – around 400,000 to 450,000 bpd shipped through an Iraqi-Turkey pipeline to Ceyhan and then on tankers to the international markets – were halted in late March by the federal government of Iraq. A few days earlier, the International Chamber of Commerce ruled in favor of Iraq against Turkey in a dispute over crude flows from Kurdistan. Iraq argued that Turkey shouldn’t allow Kurdish oil exports via the Iraq-Turkey pipeline and Ceyhan without approval from the federal government of Iraq. The court ruled that Turkey should pay Iraq compensation of $1.5 billion for what now appears to be illegal exports of oil over five years. In response, Turkey shut off the Kirkuk-Ceyhan pipeline, effectively suspending oil exports from Kurdistan. Emergency talks followed, as did oil field shutdowns because Kurdistan does not have enough storage space to maintain production. Oil prices jumped considerably on the production outage in northern Iraq. The negotiations between Baghdad and Erbil are focused on who gets more control over the oil flows, with the two sides being forced to make concessions so exports could resume. For the central government in Iraq, it looks like a win, because exports will now go through the Iraqi state-owned oil company, SOMO, rather than through the Kurdistan authorities.
Russia Finds New Market For Its Fuels In The Middle East
The trade shift in Russian oil flows is benefitting Moscow’s Middle Eastern allies in the OPEC+ pact as the biggest Arab Gulf oil producers, Saudi Arabia and the United Arab Emirates (UAE), scoop up Russia’s fuels at discounted prices. With Western markets essentially shut for Russia’s crude and products, new trade routes have emerged, and the countries sitting on some of the largest oil reserves are now importing Russian diesel, naphtha, and fuel oil, according to tanker-tracking and data commodity services. Saudi Arabia and the UAE, traditional Middle Eastern allies of the United States, are not shying away from importing, storing, trading, or re-exporting Russian fuels despite American efforts to persuade them to join a crackdown on Russian attempts to evade the Western sanctions on its oil. Russia Begins Exporting Fuel To Top Middle Eastern Oil Producers Since the Western countries announced they would impose embargoes and price caps on Russia’s crude oil and oil products, the reshuffle of oil trade out of Russia has involved the Middle East as a major importing and trading hub. In 2022, Russia’s oil exports to the UAE hit a record 60 million barrels, triple compared to the previous year, according to Kpler data cited by The Wall Street Journal. Fujairah, the biggest trading hub in the UAE, is now receiving a lot of Russian oil products, whose volumes are now second only to gas oil from Saudi Arabia, per estimates from Argus Media. The UAE is also emerging as a hub for trading, insuring, and shipping Russian oil. Earlier this year, Russia started exporting fuels to Saudi Arabia, the world’s top crude oil exporter and de facto leader of OPEC. Saudi Arabia and Russia are also the leaders of the OPEC and non-OPEC producers in the OPEC+ alliance, which has been coordinating crude oil supply to the market for more than six years now. Kpler estimates that Russia is now sending around 100,000 barrels per day (bpd) of fuels to Saudi Arabia, compared to virtually zero before the Russian invasion of Ukraine, per data quoted by the Journal. Russia seems to be accelerating its exports of diesel to Saudi Arabia through both direct shipments and ship-to-ship transfers. Russia started exporting diesel to Saudi Arabia in February after Moscow’s key fuel export outlet, the EU, enacted an embargo on seaborne imports of Russian oil products on February 5, Reuters reported earlier this year, quoting traders and ship-tracking data. Using STS loadings, Russia is shortening the routes for tankers headed to Africa and Asia after Moscow is now banned from exporting fuels to the EU. The EU banned—effective February 5—seaborne imports of Russian refined oil products, and around 1 million bpd of Russian diesel, naphtha, and other fuels had to find a home elsewhere if Moscow wanted to continue getting money for those products. The flow of Russian fuels to third countries is also regulated by price caps, similar to the cap on Russian crude if the trade is carried out through Western insurers. The cap on Russian diesel is $100 per barrel, while the cap on lower-cost petroleum products is set at $45 a barrel. “As Russia’s oil reshuffle continues, some trading patterns are solidifying. India and China have emerged as the top strategic trading partners for Russia, accounting each one-third of total arrivals of Russian oil in March,” Serena Huang, Head of APAC Analysis at Vortexa, wrote last week. “In considering the alternative markets for Russian oil after the EU ban, we see an interesting distinction of crude, naphtha and fuel oil exports being concentrated among a handful of destination countries in Asia and the Middle East, whilst diesel supplies have headed towards more diverse markets including Saudi Arabia, Turkey, Brazil etc,” Huang added. Russian diesel exports jumped by 33% in March, with shipments from Russia’s Black Sea ports going to the East and Western Mediterranean regions to countries such as Libya, Egypt, and Tunisia. Exports out of the Baltic Sea ports “have shifted fairly evenly in terms of percentage share to Brazil, Saudi Arabia, Egypt and Morocco,” Vortexa’s Senior Market Analyst Pamela Munger said earlier this month.
Earnings preview: Oil and gas sector expecting a sleek quarter due to better realisations
The earnings numbers for the fourth quarter of the financial year gone by (FY23) for the oil and gas sector will be declared this week starting with Reliance on Friday. Sector watchers expect the quarter to be better than the previus one (Q3FY23) riding on realisations. On the other hand, Singapore’s gross refining margins (GRMs) have increased to levels of $8.2 per barrel versus $6.3 per barrel earlier, and this is something that will show in Reliance Industries Ltd’s (RIL) earnings, which will see an improvement led by the O2C or the oil to chemical segment and lower windfall tax as well. Overall, this would lead to an EBITDA increase of 5 percent on a sequential basis and on a consolidated basis as well for the company. For oil marketing companies (OMCs), lower crude and higher refining margins will be positive, but a bigger turnaround will come in from the marketing segment, and that is where improvement will be seen. When both segments will lead to a 77 percent sequential surge in EBITDA and 3.3 times increase in profit after tax (PAT) according to ICICI Securities. For upstream companies, even though crude prices have declined, realisations post taxes have been around $72-76 per barrel and gas realizations have been stable quarter on quarter (QoQ). So this will see a set of. Overall high other income will aid earnings for oil producers this time . City gas distribution (CGD) companies will see a mixed bag whereas Mahanagar Gas Ltd (MG) will see the best performance. MGL took sharper price hikes versus Indraprastha Gas Ltd (IGL) and hence the EBITDA performance is expected to be better. Gujarat Gas will see a weak performance this time round led by lower demand in the industrial segment. Nirmal Bang estimates that Gujarat Gas will see 26 percent decline in EBITDA YoY, IGL will see a 12.5 percent increase, but the biggest rise will be 72 percent increase in MGL’s EBITDA. Now for gas utilities, GAIL and GSPL will see a weak quarter due to supply shortages and also weak demand while Petronet LNG will see better numbers. That is because of the lower spot LNG price.