EIA: Oil Prices Will Not Rally Despite Saudi Output Cut
Oil prices will not average more than $80 per barrel in the second half of this year, despite the most recent production cut announced by Saudi Arabia, the U.S. Energy Information Administration (EIA) said in its latest Short-Term Energy Outlook (STEO) released this week. At Sunday’s meeting, OPEC+ producers decided to extend their crude oil production cuts through 2024, while Saudi Arabia said it would voluntarily reduce its production by 1 million bpd in July to around 9 million bpd. The Saudi cut could be extended beyond July, Saudi Energy Minister, Prince Abdulaziz bin Salman, said. Despite the Saudi cut and the extension of the current OPEC+ cuts through 2024, the EIA expects non-OPEC producers to drive global liquids production to growth of 1.5 million barrels per day (bpd) in 2023 and 1.3 million bpd in 2024, limiting the upside for oil prices. Production growth in the United States, Norway, Canada, Brazil, and Guyana will be the primary drivers of the increase in global liquids output. The cuts, however, will result in draws in global oil inventories in each quarter between the third quarter of 2023 and the third quarter of 2024, the EIA reckons. Oil inventories will drop slightly next year, compared to last month’s STEO that forecast inventory growth of 300,000 bpd for 2024. This, the U.S. administration says, will put gradual pressure on oil prices. But oil is not expected to rally, and Brent Crude prices will average $79 per barrel in the second half of 2023, which is $1 a barrel higher than in May’s STEO estimate. The 2024 oil price forecast was raised to an average of $84 per barrel, up by $9 per barrel compared to last month’s assessment. Early on Wednesday, Brent Crude prices traded just below $76 per barrel as the Saudi cut failed to lift prices with the market focused more on the economic slowdown instead of expectations of a tighter market further out this year. Oil consumption will rise by 1.6 million bpd this year, and by another 1.7 million bpd next year, the EIA said, but noted that “Significant uncertainty remains around global economic growth and the potential impact on oil demand over the forecast period.” The EIA also revised down its estimates for the U.S. economy and diesel consumption for this year and next. The latest forecasts assume U.S. GDP growth of 1.3% in 2023 and 1.0% in 2024, which is down from last month’s forecast of 1.6% in 2023 and 1.8% in 2024, based on the S&P Global macroeconomic model for the U.S. economy and EIA’s energy price forecasts. The reduction in forecast GDP growth has led to lowered estimates for distillate fuel – mostly diesel – consumption. The EIA now expects U.S. distillate consumption to fall in 2024, which is a change from last month’s forecast that had expected distillate consumption to grow next year. “Recently, service sector production has been the primary driver of GDP growth, which requires less diesel consumption,” the EIA said in its discussion about diesel consumption and economic growth as part of the latest STEO. “We expect this trend to continue; we forecast in our STEO that U.S. diesel consumption in the second half of 2023 will be below the 2015−2019 average before a slight further decline in 2024 despite an expected increase in GDP over the same periods.” EIA’s forecast assumes that the Fed’s interest rate increases will slow inflation without causing major disruptions to U.S. employment or economic activity. “If GDP growth does decline, we could see a further slowdown in U.S. diesel consumption,” the EIA noted. Despite the Saudi attempts to further tighten the oil market and push prices higher, macroeconomic concerns about the U.S. and European economies and a possible slower-than-expected Chinese recovery continue to weigh on oil prices.
Rerouted Oil to Soften Russian Economy Contraction: World Bank
Oil shipment volumes from Russia “have not changed materially” despite war sanctions, and the absorption of its losses in Europe by the likes of China and India would help keep its economic contraction at 0.2 percent this year from an estimated 2.1 percent in 2022, the World Bank said Tuesday. “Clear signs of trade diversion emerged following the invasion, with the value of Russian fuel exports to the EU declining by over 40 percent last year, while exports to India and China increased”, the United Nations lender said in its outlook report for 2023 and 2024. Traditionally the top destination for Russian energy, the European Union accounted for eight percent of Russia’s mineral fuels exports in December 2022, having consistently fallen since March 2022, when the region comprised 17.4 percent of the total. Europe’s intake March 2022, the month after President Vladimir Putin launched his war on Ukraine, was its highest in the January 2019-March 2023 data the World Bank presented in the report. The 27-member bloc’s share of imports of Russian mineral fuels stood at 2.2 percent March 2023. In contrast world number two economy China saw its share of imports of Russian mineral fuels rise to 8.2 percent in March this year from six percent in March 2022 and 5.8 percent in December 2021. India saw a sharper increase, accounting for five percent of Russian mineral fuels shipments March 2023 from 0.9 percent March 2022 and 0.6 percent December 2021. “Russian imports from Türkiye more than doubled”, the World Bank said. Türkiye’s share stood at 1.4 percent March 2023 from 0.7 percent March 2022 and 0.5 percent December 2021. “Those trends were also reinforced since the beginning of the year, with Russia’s fuel exports to the EU falling by 87 percent in March from a year earlier”, the Washington-based World Bank added. “In Russia, the contraction this year is envisaged to be milder than initially forecast, partially due to the continued flow of energy exports”, it said. “Output in Russia is projected to contract slightly, by 0.2 percent in 2023, a 3.1 percentage point upgrade from the January 2023 forecast. This change mainly reflects the unexpected resilience of oil production and higher-than-expected growth momentum from 2022”, the report stated. Russia’s rerouting of its oil helped limit its output contraction last year to 2.1 percent. “The recession was less severe than projected earlier, due to higher oil production, the redirection of oil exports away from traditional markets, and more government fiscal support than initially assumed”, the World Bank said. But while Russia’s fuel exports found alternative markets, the World Bank said, “Continued contraction in export volumes, weak domestic demand, policy uncertainty, and sanctions due to Russia’s invasion of Ukraine will continue to weigh on activity”. Slowdown in Other Oil Economies Other oil exporting economies are also likely to slow down this year “as the boom in industrial activity associated with high energy prices fades”, the report stated. “Crude oil prices are projected to average $80/bbl [barrel] in 2023, a $8/bbl downward revision from the January forecast, and to edge up to $82/bbl in 2024, reflecting a modest pickup in demand”, the World Bank said. “Prices for natural gas and coal are expected to moderate in 2023 and decline further in 2024, as Europe has made substantial progress in improving efficiency and reducing energy demand. Natural gas prices in Europe are expected to remain well above their pre-pandemic five-year average, despite elevated inventories”.
Indian imports of US ethane for petchems to expand
State-controlled refiners Bharat Petroleum (BPCL) and Gail are investing in new ethane-fed cracker projects at their existing petrochemical facilities to capitalise on the abundant availability of cheap US ethane and the growing fleet of very large ethane carriers (VLECs). This follows on from private-sector refiner Reliance switching to US ethane at its 1.5mn t/yr ethylene cracker in Jamnagar, in west India’s Gujarat state, over the past few years, having previously relied on ethane extracted from LNG imports from the Mideast Gulf. Gail operates two 450,000 t/yr crackers at its Pata petrochemical plant in Uttar Pradesh in northern India, which can use either ethane or propane. This arrives through the Hazira-Vijaypur-Jagdishpur pipeline having been fractionated and processed from LNG at Hazira on the west coast of Gujarat. BPCL is also increasingly integrating its refining operations with petrochemicals, but presently only has 500,000 t/yr of propylene capacity at its 310,000 b/d Kochi refinery in Kerala. BPCL is investing close to $6bn to develop an ethane-fed cracker at its 156,000 b/d Bina refinery in Madhya Pradesh, while Gail is spending a similar amount on building a 1.2mn t/yr ethane-fed cracker near its 5mn t/yr LNG plant at Dabhol in Maharashtra. Gail has signed an initial agreement with Shell Energy India to import US ethane and has expressed interest in hiring VLECs to transport the supply over 20 years starting from mid-2026. The plans are partly aimed at cutting reliance on LNG after a shortage last year prompted by disruptions to supplies from Russia’s state-controlled Gazprom in the wake of the war in Ukraine, and surging international prices. Petrochemical producers in India imported 1.3bn m³ of LNG in 2022, down by 47pc on the year, oil ministry data show. This resulted in Gail shutting down its Pata plant for a few months and then operating it at a lower utilisation when it was brought back on line. Besides the price and reliability of LNG imports, the act of processing and fractionating it for use in NGLs in India also adds complication and costs. “We continue to focus on differentiated and specialty polyester products,” Reliance said recently. “We have always mentioned about having zero dependence on LNG and that essentially continues.” Plant pressures India’s ethane imports have been relatively steady in recent years. They reached 1.62mn t in 2022, compared with 1.53mn t in 2021 and 1.57mn t in 2020, Vortexa data show. But the country’s expanding ethylene production capacity and domestic consumption will boost this in the coming years. India’s ethylene demand is likely to increase to 8.7mn t and polyethylene consumption to 6.9mn t by 2026, Argus calculates. Center Approves Setting up of Ethanol Plant in Una June 8, 2023: The Central Government has approved the ethanol plant being set up by Hindustan Petroleum Corporation Limited (HPCL) in district Una of Himachal Pradesh. This plant will be set up on 30 acres of land at a cost of 5 billion. Rice, sugarcane, and corn are majorly used for ethanol production. Therefore, this scheme will also prove helpful in strengthening the economy of the farmers of the region. Chief Minister Thakur Sukhwinder Singh Sukhu had taken up the matter with the Centre. The raw material for this plant will be procured from districts Kangra, Hamirpur, Bilaspur, and Una. Apart from this, this plant will provide employment and self-employment opportunities to the local people and farmers of Kangra, Hamirpur, Bilaspur, and other parts of the state. With the establishment of this plant, about 300 people of the area will get direct and indirect employment opportunities.
Cheap Russian crude imports turn not so profitable for Indian oil companies
India managed to reduce its overall expenditure on crude oil imports by taking advantage of discounted Russian oil. However, Indian Oil Marketing Companies (OMCs) failed to maximise the benefits from this favorable situation. Kotak Institutional Equities in a report said that, “We also note that while India’s overall crude imports costs have benefitted from Russian imports, OMCs’ reported raw material costs do not show any increased advantage versus Dubai crude.” Kotak Institutional Equities say that the benefit of Russian crude will be higher for companies like Nayara Energy, which is owned by Rosneft, a Russian OMC. Indian oil companies have to spend more on transportation and insurance costs as compared to Nayara Energy which saves cost and benefits from the discounted Russian crude oil. Indian Oil Corporation’s (IOC) raw material costs in Q2FY23 was around $115 billion per barrel, while Dubai crude oil was around $105 billion per barrel. This means IOC was not able to monetise the benefits of Russian imports. Similarly, Bharat Petroleum Corporation’s (BPCL) raw material costs in Q2FY23 was around $115 billion per barrel compared to Dubai crude oil, which was around $105 billion per barrel. Dubai crude is used as a benchmark. Thus, if Indian refiners’ crude costs decline (versus Dubai crude), it not only boosts their refining GRMs, but also offers improved advantage over Singapore GRM
More Russian Oil is making backdoor entry into NATO nations via Saudi Arabia, UAE
The cat is out of the bag. India is not the only country using imported Russian oil to export processed petro-products. West Asian oil giants, led by Saudi Arabia, are buying millions of barrels of Russian diesel oil, which is banned in Europe, to sell the product to buyers in the European Union (EU). Saudi Arabia and the United Arab Emirates (UAE) are importing low priced Russian oil to jack up oil exports at higher prices to Europe. Earlier, reports suggested that India, the world’s third largest consumer and importer of crude oil, was exporting Russian oil, after refining, to countries in Europe and Asia. These reports are only partly true as India has been exporting refined oil products for many years. India has been importing crude oil from a number of countries. Lately, India has substantially raised its crude oil imports from the US, with the country’s share in India’s crude basket hitting a record 14.3 percent in December. While Russia has become the top source of crude oil with a share of 21.2 percent in December, India reduced its dependence on Iraq (16.9 percent), UAE (6 percent) and Kuwait (4.2 percent) to accommodate more crude imports from the US. In December, crude oil imports from the US shot up 93 per cent to 3.9 million MT. India hardly imported crude oil from Russia till 2021. Huge transportations costs made Russian crude oil very expensive compared to India’s nearby import sources from West Asia. Incidentally, India’s first greenfield private sector refinery at Jamnagar in Gujarat, put up by Reliance Industries (RIL), was granted export-oriented status as early as in April, 2007. It used imported crude oil, mostly from West Asian suppliers, to make refined products for the purpose of export. The RIL refinery has an installed capacity of 1.24 million barrels per day, making it the world’s largest refinery. The situation changed after the Russia-Ukraine war began in February, last year. The western trade and financial embargo on Russia forced the latter to sell its oil and other products at large discounts. Oil imports suddenly became much cheaper from Russia. This made India go for Russian crude oil as the country’s energy market is 87 percent dependent on imported oil. Till 2020-21, India’s purchase of crude oil from Russia was less than one percent of its total oil imports. India bought only 419,000 tonnes of crude oil from Russia in the first 10 months of 2020-21, which was 0.2 per cent of the total import of 175.9 million tonnes. India exported refined petroleum products worth US$49 billion in 2021, making the country the world’s third largest refined petroleum exporter. The main export destinations were Singapore ($4.59 billion), the US ($3.56 billion), the Netherlands ($2.89 billion) and Australia ($2.62 billion). India’s fastest growing export markets for refined petroleum during 2020 and 2021, well before the Russia-Ukraine war, were the US, Australia and Togo