Oil Price Volatility Will Only Get More Extreme
Concerns about the economy and new banking sector jitters have sent oil traders rushing for the exits and cutting their bullish bets on crude oil again. As more speculators leave the market – with open interest in U.S. crude oil futures at its lowest in three years – prices are set for more extreme volatility. WTI Crude, the U.S. benchmark, saw the biggest drop in the net long position – the difference between bullish and bearish bets – in six weeks in the week to May 2, data from the U.S. Commodity Futures Trading Commission (CFTC) showed on Friday. The previous large drop in bullish bets had taken place right before early April when the OPEC+ group surprised the oil market by announcing additional cuts to production between May and December 2023 to ensure the “stability of the market.” The OPEC+ move burned the short sellers, following through with the proverbial promise of Saudi Energy Minister Prince Abdulaziz bin Salman from 2020, “I’m going to make sure whoever gambles on this market will be ouching like hell.” After the production cuts were announced, prices spiked for two weeks until the middle of April, before negative sentiment about the economy and underwhelming Chinese recovery took over again and drove prices back down to the low $70s. WTI Crude even fell below the $70 a barrel mark last week. Speculators have been consistently caught off-guard in the past two months, and many have now opted to stay away. Lower open interest and liquidity in the market is bound to make price swings even more extreme, according to analysts. “In short, the oil market needs more players on the field,” Michael Tran, managing director at RBC Capital Markets, told Bloomberg. But in the week to May 2, money managers cut their long positions and added short positions, cutting their net bullish bets in both WTI Crude and Brent Crude futures and options contracts, data from exchanges showed. Driven by heavy selling in energy, bullish bets on the major commodities futures plunged by one-third in the latest reporting week to the lowest since June 2020, Ole Hansen, Head of Commodity Strategy at Saxo Bank, noted. Brent, WTI, and European gasoil – the proxy for diesel – were the hardest hit by selling. The technical downside break forced speculators to cut their net long position in WTI Crude by 36,000 lots and in Brent by 69,000 lots in the week to May 2. The combined net long position in the two most important crude oil futures and options contracts was slashed by one-fourth, while the net short position in ICE gasoil futures continued to swell to a fresh high in more than seven years. “A nightmare two-month period for momentum traders continued in the week to May 2,” Hansen commented. “During an eight week period the crude oil market has seen a banking crisis, an Opec cut driving a spike and subsequent focus on gap closing, and fresh demand concerns,” he added. Speculators have responded by selling 393,000 lots and buying 213,000 lots, the bulk of these at unprofitable levels, according to Saxo Bank’s head of commodity strategy. The economy in the U.S., the pace of the Chinese recovery, and the upcoming OPEC+ meeting in early June will continue to drive oil markets, while fresh bank runs could quickly sour sentiment again in the coming weeks. Reports emerged last week, when oil prices crashed again, that OPEC+ would hold its June 4 meeting in person. The last time OPEC+ ministers met in person in Vienna was in October 2022, when the alliance announced oil production cuts from November 2022 through December 2023. In the meantime, speculators and momentum traders could be more careful with bets in the oil market, which would leave prices exposed to wild swings in either direction.
India govt panel proposes ban on diesel 4-wheeler vehicles by 2027
India should ban the use of diesel-powered four-wheeler vehicles by 2027 and switch to electric and gas-fuelled vehicles in cities with more than a million people and polluted towns in order to cut emissions, an oil ministry panel is recommending. India, one of the biggest emitters of green house gases, wants to produce 40% of its electricity from renewables to achieve its 2070 net zero goal. “By 2030, no city buses should be added which are not electric…diesel buses for city transport should not be added from 2024 onwards,” the panel said in a report posted on the oil ministry’s website. It is not clear if the petroleum ministry will seek cabinet approval to implement the recommendations of its Energy Transition Advisory Committee, headed by former oil secretary Tarun Kapoor. To boost electric vehicle use in the country, the report said the government should consider “targeted extension” of incentives given under Faster Adoption and Manufacturing of Electric and Hybrid Vehicles scheme (FAME) to beyond March 31. Diesel accounts for about two-fifths of refined fuel consumption in India with 80% of that being used in the transport sector.
ONGC to pump KG block oil by June, ending 3-yr delay
Oil and Natural Gas Corp. Ltd (ONGC) is set to begin oil production in the Krishna Godavari basin by June, said Om Prakash Singh, ONGC’s director of technology and field services (T&FS) in an interview. The company’s oil production from the block was scheduled to begin by March 2020, and gas by June 2019, but was delayed due to the pandemic.
Middle East gas producers set to spend $120bln to boost output by 2030
The Middle East is set to spend up to $120 billion to boost natural gas production by more than 19% by 2030, according to energy consultancy Wood Mackenzie. Natural gas output from the region will rise to 86 billion standard cubic feet (bcfd) a day by the end of the decade, from 72 bcfd currently, it said in a report last week. The expected increase in production is equivalent to the gas consumption of the entire European power sector and could help energy companies solve the energy trilemma of sustainability, security and affordability, the report said. “The Middle East can be part of the solution for the global gas markets as the region continues to ramp up production from its gigantic gas reserves,” said Alexandre Araman, principal analyst for Middle East Upstream at Wood Mackenzie. Around half of the 14 bcfd increase will be made available for export, which could have a game-changing effect on the global gas markets, especially as the LNG liquefaction capacity in the Middle East keeps growing. The other half will be absorbed by domestic demand growth. “To fulfil the level of production growth that we have predicted, investments in non-associated gas projects are set to reach a record $25 billion this year and a cumulative total of $120 billion by the end of the decade.” Qatar LNG exports should reach 126 million tonnes per annum (mmtpa) by 2030, while Abu Dhabi should be able to export 15.4 mmtpa after its new LNG facility comes onstream in 2028. The report adds that for international companies, gas projects in the region present attractive opportunities. Gas accounts for barely 35% of their Middle East production mix but generates more than 70% of the value. Fifty per cent of the value figure is created in the global LNG powerhouse of Qatar by three companies: ExxonMobil, Shell and TotalEnergies.
India’s IGL partners Acme for H2 infrastructure
Indian state-controlled city gas distributor Indraprastha Gas (IGL) has signed an initial agreement with Indian renewables firm Acme to develop domestic green hydrogen infrastructure. The companies will work together to explore opportunities for setting up hydrogen generation plants, including electrolysers to blend green hydrogen in IGL’s existing pipeline networks supplying gas to households and industrial and commercial set-ups, as well as compressed natural gas (CNG) for vehicles, IGL said on 4 May. IGL operates a 18,811km pipeline network across Delhi’s national capital region. The companies will also co-operate in policy matters and promote adoption of green hydrogen and green ammonia to customers. IGL is also looking at opportunities for green hydrogen use in the automobile sector and production of green ammonia from green hydrogen, said managing director Sanjay Kumar. Blending green hydrogen into city gas-distribution networks is a key component under the first phase of India’s National Green Hydrogen Mission, which runs until 2026. The scaling up of green hydrogen production and use should drive down costs, allowing for greater and wider deployment in the second phase that is scheduled to run until 2030. Then the government will seek to make green hydrogen costs competitive with fossil-fuel alternatives for refineries and fertilizer production, exploring commercial-scale green hydrogen-based projects in the steel, mobility and shipping sectors. The government aims to make India “the global hub for production, usage and export of green hydrogen and its derivatives”, according to the National Green Hydrogen Mission policy document, with an intention to reach 5mn t/yr of green hydrogen production by 2030. Indian state-controlled gas distributor Gail has already begun blending grey hydrogen with natural gas to be supplied to Avantika Gas, its joint venture with state-controlled refiner Hindustan Petroleum. Gail launched the hydrogen blending project as a pilot venture, seeking to establish the feasibility of blending hydrogen into the city gas distribution network. It aims to subsequently replace grey hydrogen with green hydrogen. Gail has successfully blended up to 2pc of hydrogen in natural gas in the city gas network, it said last year. State-controlled power utility NTPC also has started blending green hydrogen into the piped natural gas (PNG) network of gas distributor Gujarat Gas. The joint venture is equipped with a 6.5kW polymer electrolyte membrane electrolyser powered by a 1MW floating solar power unit, the first of its kind in India, according to a NTPC official. Hydrogen can be blended with natural gas for industries such as ammonia, refining and methanol and into natural gas pipelines for the existing city gas network of PNG and CNG, according to a report by government think-tank Niti Aayog. The blending of hydrogen into city gas distribution is currently at the nascent stage as the government is experimenting and monitoring its outcome. There is a limit to blending hydrogen in existing pipeline infrastructure because of its low density and higher diffusivity, as existing gas pipelines should be coated or made of different material to withstand higher compression ratios, the report added.
Green hydrogen: State oil firms target 38,000 tons/year capacity by 2024-25
India’s state-run oil and gas companies are targeting to build a combined green hydrogen generation capacity of 38,000 tonnes per annum by the next financial year, according to a government panel report The planned green hydrogen facilities would require setting up a combined electrolyzer capacity of 279 MW by 2024-25, according to the energy transition advisory committee of the petroleum ministry. Of this, Hindustan Petroleum is planning to have 115 MW capacity at its refineries in Visakhapatnam and Barmer. Gas pipeline operator GAIL is targeting a capacity of 60 MW while Indian Oil, the nation’s largest refiner, aims to develop a capacity of 56 MW at its Mathura and Panipat refineries. Bharat Petroleum is targeting 25 MW capacity while Numaligarh Refinery and Mangalore Refinery& Petrochemicals are aiming for 20 MW and 3 MW respectively. India is placing a big thrust on green hydrogen in its energy transition plan. It aims to develop green hydrogen production capacity of at least 5 million metric tonnes per annum by 2030.