Oil Short-Sellers Might Be In For Another Big Squeeze
Oil prices recorded big declines on Thursday, with WTI and Brent crude down 3% on the intraday session as debt ceiling jitters overcame optimism about another round of OPEC+ production cuts. Rampant short-selling has also been putting a lot of pressure on the markets. According to commodity experts at Standard Chartered, speculative positioning in crude oil has now returned to its March bearish extreme despite the OPEC+ cuts taking effect in the current month. There’s a disconnect between what energy economists are seeing in the data and what speculative traders are acting on. Oil prices have touched multi-year lows on several occasions over the past two months, with StanChart speculating that the disconnect could be the result of the increasingly top-down and macro-led nature of oil-market sentiment. But the shorts might be in for another big short squeeze. It’s becoming increasingly clear that Saudi Arabia is no longer interested in staying in Washington’s good books, and the OPEC+ cartel will do anything in its power to keep oil prices high. “Speculators, like in any market they are there to stay, I keep advising them that they will be ouching, they did ouch in April, I don’t have to show my cards I’m not a poker player… but I would just tell them watch out,” Saudi Energy Minister Abdulaziz bin Salman said on Wednesday as quoted by Reuters. The United States and Europe have been strongly opposed to production cuts by the cartel, with President Joe Biden’s administration accusing Saudi Arabia of colluding with Russia and supporting its war in Ukraine shortly after OPEC+ announced the first cuts. “The Saudi Foreign Ministry can try to spin or deflect, but the facts are simple, this will increase Russian revenues and blunt the effectiveness of sanctions,” National Security Council spokesman John Kirby said in a strongly worded statement in October. Shale Decline The Biden administration has also been frustrated by the inability or unwillingness by domestic producers to ramp up production in a bid to lower fuel prices. U.S. shale producers have opted to return excess cash to shareholders instead of drilling more. The much-touted second shale boom has lately been getting a reality check as equipment demand declines sharply, a worrying sign that drilling in U.S. shale energy regions is leveling off. The Financial Times has reported that next week, Texas auctioneer Kruse Asset Management will auction off two unused, top-of-the-line drilling rigs valued at $40 million and $30 million when built in 2019 at starting bids of just $12.9M and $2.3M, respectively. “There’s no reason for them to be so cheap, but there’s just no demand,” Dan Kruse, chief executive of Kruse Asset Management, has told the Financial Times. According to Baker Hughes data, U.S. oil and natural gas rig count has declined 6% in the year-to-date to 731 last week, reversing a steady climb since the depths of the pandemic. The current tally is a far cry from the nearly 2,000 rigs that were running around mid-2014 at the peak of the shale boom. Last week, rig count for gas-directed rigs dropped by 16, or 10 per cent–the steepest weekly fall since 2016. Expectations for another shale boom are getting tamped down due to rising costs as well as limited supplies of labor and equipment that continue to hamstring efforts by U.S. shale producers to quickly ramp up production. Still, a number of experts have predicted that U.S. production will continue growing. A week ago, the Energy Information Administration (EIA) forecast U.S. crude production will rise about 5% in 2023, while fuel demand will increase 1%. U.S. crude oil exports for the month of April surpassed forecasts, hitting a record 4.5 million barrels per day in March thanks to a strong Chinese market due to rising fuel demand. U.S. crude exports grew 22% last year from 2021 after Russia’s invasion of Ukraine led the U.S., the EU and Canada to ban imports of Russian oil and dramatically altered global flows. China is the world’s second largest oil consumer, and has recorded an economic resurgence ever since it rolled back its strict zero-covid policies. April exports to China surged to ~850,000 barrels per day, the highest level since May 2020. Overall, the oil price selloff is likely to prove fleeting, with most experts predicting oil prices above $80 a barrel over the coming years–well above the $58-a-barrel average price between 2015 and 2021.
USD 300 million of Indian oil firms stuck in Russia
As much as USD 300 million (about Rs 25 billion) of dividend income belonging to Indian oil firms is stuck in Russia due to tough Western sanctions following Moscow’s invasion of Ukraine, a top official said on Thursday Indian state oil firms have invested USD 5.46 billion in buying stakes in four different assets in Russia. These include a 49.9 per cent stake in the Vankorneft oil and gas field and another 29.9 per cent in the TAAS-Yuryakh Neftegazodobycha fields. They get dividends on profits made by the operating consortium from selling oil and gas produced from the fields. “We had been regularly getting our dividend income from the projects, and they are lying in bank accounts in Russia,” Oil India Ltd chairman and managing director Ranjit Rath told reporters here. Soon after Russia’s invasion of Ukraine in February last year, several major Russian banks were banned from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) financial transaction processing system, constricting Moscow’s ability to access the global payments system. Also, the Russian government has put restrictions on the repatriation of dollars from that country to check volatility in foreign exchange rates. The USD 300 million dividend income pertains to the consortium of OIL, Indian Oil Corporation (IOC) and Bharat PetroResources Ltd. ONGC Videsh Ltd, which also has a stake in the same projects, would have a similar dividend income. This dividend is lying with the Commercial Indo Bank LLC (CIBL), which was a joint venture of the State Bank of India and Canara Bank. Canara Bank in March sold its 40 per cent stake in CIBL to SBI.
India takes lead in clean energy investment: IEA
India is emerging as a global leader in clean energy investment, surpassing spending on fossil fuels, as the country accelerates its transition towards sustainable energy solutions, according to a report released by the International Energy Agency (IEA) on Thursday. Of the projected $2.8 trillion global energy investment for 2023, more than $1.7 trillion is expected to be allocated to clean technologies, including renewables, electric vehicles, nuclear power, grids, storage, low-emission fuels, efficiency improvements, and heat pumps. In contrast, investments in coal, gas, and oil are estimated to amount to slightly over $1 trillion. India’s robust clean energy industry is experiencing remarkable growth, with solar investments taking centre stage. The IEA report emphasizes that solar power is poised to overtake investments in oil production for the first time, underscoring India’s commitment to renewable energy sources. Highlighting India’s achievement in clean energy, IEA executive director Fatih Birol said, “Clean energy is moving fast – faster than many people realise. This is clear in the investment trends, where clean technologies are pulling away from fossil fuels. One shining example is investment in solar, which is set to overtake the amount of investment going into oil production for the first time.” India’s clean energy drive is fuelled by a combination of factors. Strong economic growth, coupled with concerns about energy security in the face of global energy crises, has propelled the country towards cleaner alternatives. Furthermore, India’s proactive policy support, including favourable regulations and incentives, has played a pivotal role in attracting significant investments. The country’s clean energy momentum extends beyond solar power. India has witnessed a substantial surge in electric vehicle (EV) adoption, with sales projected to increase by a third this year following impressive growth in 2022. Additionally, India’s commitment to electrified end-uses is evident in the double-digit annual growth of global heat pump sales since 2021. While India leads the way in clean energy investment, the IEA report highlights the need for global efforts to ensure equitable and widespread clean energy transitions. The majority of the increase in clean energy investments is coming from advanced economies and China, raising concerns about potential divisions in global energy dynamics if other regions do not accelerate their clean energy adoption. Addressing the investment gap, Birol stressed the importance of international collaboration, stating, “Much more needs to be done by the international community, especially to drive investment in lower-income economies, where the private sector has been reluctant to venture.”
India to be green hydrogen hub by 2040: Hardeep Singh Puri
India will become a major green hydrogen hub in all aspects – production, consumption and exports – by 2040, petroleum and natural gas minister Hardeep Singh Puri on Wednesday said at a CII event. “By 2040, India will be a major green hydrogen hub with demand, production, and consumption all in India, including major exporting of green ammonia and others. I am very bullish on these next 15 years,” the oil minister said. The government, in its Budget for FY24, announced Rs 197 billion under production linked incentive (PLI) scheme to promote green hydrogen. “The PLI amount is just a catalyst. There is no dearth of resources. Money is coming in green hydrogen. India will be in the forefront of advancements in green hydrogen and not a follower,” he said. Considering the energy requirement of a growing India, he said that while the exploration and production (E&P) activities will go up exponentially, increased affordability and spending power will make green transition even faster. Puri called on the industry people attending the two-day annual event of the Confederation of Indian Industry (CII) to make their investment decisions based on the forecast that 25% of the global demand in the next 20 years till 2045 will come from India. “This growth will take place, transition to green energy will take place and that is the real story which is unfolding,” he said, adding that while global increase in demand per capita is 1%, growth in India is thrice that much.