Traders Dumped Oil Despite Middle East Tensions
Institutional traders are dropping their oil positions as the outlook for the commodity—and the global economy—becomes marred in even more uncertainty. There has also probably been some profit-taking among hedge funds and other large oil futures market players after oil prices surged above $90 following the latest OPEC meeting earlier this month. The profit-taking started soon after the meeting, but the pace of exiting oil positions has accelerated recently. Reuters’ market analyst and columnist John Kemp reports that last week, traders quit oil and fuels at one of the fastest rates for the past decade, reducing their exposure by a total of 140 million barrels. For context, the last three weeks have seen institutional traders sell a total of 197 million barrels after building positions equaling 398 million barrels over the previous 12 weeks. Concern about the immediate future of the global economy is certainly one reason for this. The International Monetary Fund said this week higher energy prices would contribute to inflation, stoking the fears. According to the lender, a 10% increase in the price of oil would add 0.4% to inflation, aggravating an already unstable situation in many parts of the world. “Debt levels are at record levels and at the same time we are in this higher-for-longer interest [rate] environment. There is a lot . . . that could go wrong,” Gita Gopinath, deputy head of the IMF said, as quoted by the FT. Indeed, speaking of debt, the Wall Street Journal recently reported that for the first time in history, there is uncertainty about the placement of the latest issue of U.S. sovereign debt. There has been a significantly higher than usual supply of Treasury bonds this year, sending U.S. debt to a record, but there are indications that demand may not correspond to that higher demand. There is also the geopolitical factor, as well. With a new war in the Middle East, it appears the biggest question is whether Iran and the United States will become involved in it more directly. Should this happen, there appear to be unanimous expectations of an oil price surge. That price surge, however, would hit economies, and it would hit them hard, which could mean traders are being pre-emptive, especially since they are not switching from bullish to bearish positions, meaning they do not expect prices to slump anytime soon. Meanwhile, in some positive news for a change, the media reported that the U.S and Venezuela may be on the way to reaching a deal that would make the U.S. lift sanctions on Caracas. The news sent oil prices 1% lower. The situation is perhaps more interesting in gas markets. Reuters’ Kemp noted that while institutional traders sold oil, they bought U.S. gas last week. They may continue to do so as global gas supply disruption risk runs high. First, it was the war between Israel and Hamas that pushed gas prices higher, especially after the Israeli government told Chevron to shut down production at the Tamar offshore field for safety reasons. Gas from Tamar flowed to Egypt, where it was liquefied and exported, including to Europe. Then, reports began coming in that workers at Chevron’s two Australian LNG projects are once again planning to strike, which immediately sent European gas prices higher. However, Europe does not import LNG directly from Australia, with one exception last year; any danger of supply disruption in a market as tight as LNG is bound to affect prices in one of the biggest importers. This extra volatility of prices will likely persist over the next few months, with Europe increasingly leaning on U.S. LNG rather than other gas suppliers such as Azerbaijan and Qatar due to certain controversy over the former’s actions in the Nagorni Karabakh region and the latter’s long-standing financial support of Hamas.
Israel-Hamas conflict: India’s hope of respite in oil prices dashed
Since Hamas’ invasion of southern Israel on October 7, petroleum has become costlier by around $5 per barrel, threatening to stoke prices and impact growth Brent crude was trading at $89.8 per barrel on October 9 (9.15 pm IST), up over 4 per cent, thwarting India’s anticipation of a period of declining oil prices — after the leading global petroleum benchmark declined by around 11 per cent last week. The price of Brent crude had collapsed by around $12 per barrel — from $96.6 a barrel on September 27 to $84.6 on October 6, a day before the Hamas attack. “Oil prices have gone up a bit because the markets are very anxious, but there is no panic–I mean, not yet,” said Narendra Taneja, a Delhi-based prominent energy expert. “However, if it escalates into a full-blown war in the region, then there will be panic, pushing up oil prices,” further. The surge in oil prices is the risk premium in the market. The region where the conflict is occurring is the centre of global energy, said India’s oil minister Hardeep Singh Puri on Monday. He expressed confidence that the country would navigate through this. However, that won’t be easy because India imports over 85 per cent of its crude needs and has traditionally been susceptible to volatility in the oil market. Strategic crude reserves, which typically aid a nation during wars and calamities, at 39 million barrels provide for only around 7.5 days of India’s crude oil requirement, according to government data. The growing conflict in West Asia threatens to further impact India’s fiscal and balance of payments position, which was already suffering from surging oil prices since August, and hinder New Delhi’s efforts to control inflation. The Indian crude oil basket, a mix of Gulf sour and Brent sweet grades, averaged $93.54 a barrel last month. “While an immediate risk to oil flow as a direct result from the conflict is not foreseen but there is a risk that the conflict may turn into a larger proxy war involving larger global powers which can have a spiraling effect,” said Sourav Mitra, practice leader and director, at ratings agency Crisil. “As far as India is concerned, an increase of $10 per barrel in oil prices can lead to a 45 to 60 basis point increase in CPI.” While the loss sharing between OMCs and the government is slightly opaque, one can expect a 10 percent oil price rise to negatively impact India’s growth by 0.09% to 0.11%, Mitra added. At 4.2 million barrels a day in imports of crude in September, according to market intelligence agency Kpler data, it looked like India would have saved $50 million every day, and around $1.5 billion a month if Brent had continued to remain low in October. But as of October 9, India will pay around $17 million more every day, and half a billion dollars more on crude imports for the month. India’s rising import costs are conservative, based on the assumption that the conflict deflates quickly and Brent crude stabilises. However, ANZ Bank warned in a client note that oil prices will be supported by increasing geopolitical risk in West Asia and will be accompanied by higher volatility. Earnings at refiners are already looking weak for the July-September quarter, but a crash in oil prices earlier this month gave hope to state-run oil companies that they can make up for lower profits in last quarter by performing better during this quarter (Q3FY24), said a Mumbai-based refiner. Given the Assembly polls in five states in November and the Lok Sabha election in 2024, the official expects negative marketing margins to continue this financial year because New Delhi will veto any proposed hike in pump prices of petrol and diesel. “We expect OMC (oil marketing company) results to be operationally weaker for July-September, owing to a sharp fall in marketing gains of petrol and diesel due to the rise in benchmark prices,” said Mumbai-based brokerage Prabhudas Lilladher in a note today. State OMCs likely have incurred a marketing loss of Rs2-6 a litre at a gross level during July-September 2023 due to high diesel crack spreads in the international market, said Paras Pal, senior analyst at India Ratings & Research. Israeli Prime Minister Benjamin Netanyahu and his Cabinet have declared a war on Hamas, and launched airstrikes in Gaza. It is unclear how far this battle will continue, especially considering that what one expected was a short war between Russia and Ukraine has soldiered on for 19 months. The US is trying to broker a peace agreement between Saudi Arabia and Israel, undermining a deal reached earlier this year between Saudi Arabia and Iran brokered by China. Saudi Arabia had agreed to increase oil output next year if the Israel deal came through, analysts said. The attack by Hamas is an effort to scupper or at least paralyse the Saudi-Israeli deal, Taneja added.
Cross-border energy pipeline to bolster ties with India
India and Bangladesh have a long history of cooperation in various sectors, including energy. Over the years, both countries have recognized the importance of energy cooperation for economic and social development. In the next few years, India and Bangladesh are expected to deepen their energy cooperation. In the face of global energy market volatility, the Bangladesh government is moving to import re-gasified liquefied natural gas (RLNG) from India via a cross-border pipeline as part of a larger contingency plan for safe fuel supplies. An initial bid would bring in roughly 300 million cubic feet per day (mmcfd) from India’s H-Energy by 2025. This will be a second cross-country pipeline providing energy between India and Bangladesh. Since its inception on March 18, last year, the first one has been transporting diesel from India. India-Bangladesh Friendship pipeline, also known as the Maitree pipeline, is an essential infrastructure project that strengthens the bilateral ties between India and Bangladesh. Bangladesh-India friendship pipeline for carrying diesel oil was jointly opened through video conference by the Prime Minister of Bangladesh, Sheikh Hasina and the Prime Minister of India, Narendra Modi on March 18, 2023. This pipeline, built to transport petroleum products from India to Bangladesh, is not only a testament to the growing strategic relationship between the two countries but also a symbol of their commitment to regional connectivity and energy security. neighboring nations. The significance of the India-Bangladesh Friendship pipeline lies in its potential to enhance energy security and reduce dependency on volatile global markets for oil and gas. By establishing a direct link between India’s Siliguri terminal and Bangladesh’s Parbatipur depot, the pipeline offers a cost-effective and reliable means of transporting petroleum products. This strategic investment in the energy sector aligns with both countries’ long-term goals of achieving sustainable development and ensuring uninterrupted access to energy resources. The successful completion of this pipeline project demonstrates the high level of comprehension exhibited by both India and Bangladesh. Not only does this infrastructure development aid in meeting the energy demands of Bangladesh, but it also showcases the strides made by both countries in fostering regional cooperation. After completing a 275-kilometer cross-border pipeline from Kanai Chatta in East Midnapore district to Shrirampur in Khulna, India’s H-Energy, a subsidiary of Hiranandani Group, planned to transport RLNG from Digha in West Bengal to Khulna in Bangladesh. Petrobangla, the state energy corporation, signed a memorandum of understanding (MoU) with Hiranandani Energy (H-Energy) in 2021 with this goal in mind. Prior to the H-Energy agreement, India’s state-owned Indian Oil Corporation Ltd (IOCL) signed an MoU with Bangladesh to provide RLNG.The initial goal is to import RLNG equivalent to about 1.0 million tonnes per annum (MTPA) from H-Energy via this pipeline for 22 years to fuel the 800MW Rupsha combined-cycle power plant controlled by the state-owned North West Power Generation Company Ltd (NWPGCL). The imported fuel would be used mostly by the under-construction 800MW facility at Rupsha in Khulna. To generate energy, the plant will require approximately 130mmcfd RLNG. The remainder of the natural gas might be fed into the national grid. The Asian Development Bank (ADB) has agreed to finance US$ 600 million and the Islamic Development Bank (IDB) roughly $200 million to build the Rupsha power plant, which will have two 400MW gas-fired units. The remaining $ 150 million will be provided by the Bangladesh government. Petrobangla would also receive an additional 200mmcfd of gas by then from private company Dipon Gas, which plans to import approximately 500 mmcfd of RLNG from India. The remaining 300mmcfd would be sold to individual consumers. The pipelines represent a joint effort to exploit shared resources effectively and promote economic integration in the region. Furthermore, its construction also reflects the understanding between India and Bangladesh in identifying and addressing common challenges, such as the need for energy diversification and reducing environmental impact.
OMCs to prepare joint roadmap on green hydrogen push, to tap cleaner fuel
Oil-marketing companies (OMCs) may soon submit a joint road map for the adoption of green hydrogen to accelerate their energy transition plans, officials said. The Ministry of Petroleum and Natural Gas Ministry has asked OMCs to submit a detailed plan to increasingly adopt green hydrogen and provide a leg-up to their energy transition plans, the officials said. Public-sector undertakings (PSUs) under the ministry target to produce more than 1 million tonnes (mt) of green hydrogen by 2030. “The ministry has been meeting OMCs to ensure ways to boost green hydrogen production in the country. A joint road map will not only ensure better coordination in mapping demand but also enable OMCs to help each other in technical assistance,” the official said. Refineries in the country already utilise hydrogen for internal consumption, which has the potential to be converted into green hydrogen. The ministry plans to ensure uptake through city gas distribution (CGD) where it will be blended green hydrogen (GH2) with natural gas. Indian Oil Corporation Limited (IOCL) is testing hydrogen-enriched natural gas, or HENG, to be carried in natural gas pipelines. In theory, the two can be mixed in any proportion, but typically, HENG in the range of 10 per cent to 20 per cent hydrogen by volume represents the most-promising near-term option. Slow rollout In August, IOCL invited global tenders to establish its first green hydrogen generation plant at the Panipat refinery. At 10 KTA (thousands tonnes per annum) capacity, the project is envisaged to be created over the next 30 months.
India’s LPG consumption peaks in September, diesel declines: PPAC
India’s relationship with petroleum products is seeing some noteworthy shifts. In the latest report rolled out by the Planning & Analysis Cell (PPAC), data from April to September 2023 showcases some interesting ups and downs in consumption patterns. Taking center stage, LPG has emerged as a dominant fuel with its consumption touching 2551 thousand metric tonne in September alone. This spike underscores the increasing dependency of households and industries on this clean fuel. Contrastingly, the High-Speed Diesel (HSD) charts tell a different tale. A noticeable dip from 8217 thousand metric tonnes in May to 6493 thousand metric tonne in September raises questions about possible shifts in transport and industrial dynamics. But it’s not just the household fuels that are making headlines. The Aviation Turbine Fuel (ATF) numbers have soared with an 11% YoY growth. This jump might hint at the resurgence of the aviation sector, potentially signaling recovering travel trends post-pandemic slowdowns.