Saudis Could Extend Production Cuts Well Into 2024
Saudi Arabia may extend its voluntary oil output cuts into the first quarter or the first half of next year, Reuters cited Energy Aspects co-founder Amrita Sen as saying on Wednesday, citing oil prices that are still too high and fundamentals that are still too strong to support a reversal. Sen’s forecast comes as oil prices as Brent crude prices were just under $82 at 11:01 a.m. Wednesday, with West Texas Intermediate (WTI) trading down a percentage point, at around $77.5 per barrel. On November 26, OPEC+ will hold another ministerial meeting. Earlier in November, Saudi Arabia, the world’s largest exporter, said it would extend its 1-million-barrel-per-day voluntary production cuts until the end of this year. The Kingdom also left official selling prices for Asia unchanged for deliveries in December because of weakening refining margins, supporting Sen’s forecast. The Saudi decisions sent the markets down on worries of oil demand outlook, suggesting these moves highlighted Saudi uncertainty. That uncertainty was compounded when Saudi Aramco reported a 23% drop in Q3 profits on lower oil prices and lower sales, despite the fact that this, in part, resulted from voluntary output cuts. On Tuesday, oil prices made some gains following OPEC’s Monthly Oil Market Report (MOMR), which indicated that the cartel sees fundamentals as strong and that demand in the U.S. and China is not troublingly low. Oil prices were climbing upwards midday Monday, with Brent crude gaining over 1.6% after the market digested an OPEC report suggesting demand in the U.S. and China is not lowering to the point of concern. The markets were also responding to unclear indications from the U.S. Federal Reserve about a potential end to rate hikes, with various investment banks speculating on rate reductions in the next 12 months. OPEC said it expected to see Chinese crude imports reach a new annual record this year, and criticized negative market sentiment as overblown.
Govt slashes windfall tax on crude oil, diesel
The Central government on Thursday cut the windfall tax on crude oil from Rs 9,800 per tonne to Rs 6,300 per tonne. It also reduced the windfall tax on diesel from Rs 2 per litre to Rs 1. The tax, levied in the form of Special Additional Excise Duty or SAED, on domestically produced crude oil was increased to Rs 9,800 per tonne from Rs 9,050 a tonne, according to an official notification on October 31 with effect from November 1. Further, the SAED on the export of diesel was reduced to Rs 2 per litre from Rs 4 a litre. India first imposed windfall profit taxes on July 1 last year, joining a growing number of nations that tax supernormal profits of energy companies. At that time, export duties of Rs 6 per litre (USD 12 per barrel) each were levied on petrol and ATF and Rs 13 a litre ($26 a barrel) on diesel. The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks. A windfall tax is levied on domestic crude oil if rates of the global benchmark rise above USD 75 per barrel. Export of diesel, ATF and petrol attract the levy if product cracks (or margins) rise above USD 20 per barrel.
As Oil Prices Fall, Russia To Slash Crude Export Duties
Russia is set to slash its crude oil export duty by 5.7% for December as the price of its Urals blend drops, Bloomberg reported on Wednesday, citing the Russian Finance Ministry. The new duty starting in December is reportedly set to the equivalent of $3.37 per barrel or $24.7 per ton, according to Bloomberg. Last week, Bloomberg cited Argus Media as assessing Russia’s flagship Urals crude blend at $66.19 at the Baltic port of Primorsk, signaling the lowest prices for Urals since late July this year, when Urals topped the G7-imposed price cap. The Russian Finance Ministry, however, said Urals was selling for $79.23 between mid-October and mid-November, down from $83.35 in the previous period. The government will lower the duty to $24.7 a ton next month as the price of the country’s key export blend Urals declined, the Finance Ministry said Wednesday. That’s down by 5.7 percent from November and equates to about $3.37 a barrel. According to Trading Economics data, Urals has seen a 24.61% increase so far in 2023, based on data on trading on a contract for difference (CFD) tracking Urals. The highest price Urals ever achieved was nearly $118 per barrel in Q1 2013. On Tuesday, the International Energy Agency (IEA) said Russia’s oil export revenues had declined by $25 million to $18.34 billion in October, in tandem with declining oil prices. The IEA suggested that lower crude oil prices more than offset the shrinking discount for Urals in defiance of the G7 price cap. The international agency said Russian oil exports fell by 70,000 bpd in October, month-on-month. The G7 price cap mandates that Russian crude oil shipments to third countries can only use Western insurance and financing if Urals is sold below the $60 price cap. On Tuesday, a European Union official told the Financial Times that “almost none” of Russia’s October crude shipments were executed below the price cap.
Brazil to help India boost ethanol production
Brazil has started sharing technology with India to help it achieve 20% ethanol blending for petrol by 2025-2026, and will send indigenous breeds to improve productivity in the livestock and poultry sector, said Brazilian agriculture and livestock minister Carlos Favaro in an interview. Brazil is the world’s second largest producer of ethanol. Brazil will also take measures to correct some of the imbalance in the agricultural trade relationship by improving market access for Indian agriculture exports, including urea, to Brazil. “We, through some companies, have already started sharing the technology to enhance ethanol blending with petrol. As India produces a lot of sugarcane, it’s easy for them to reach up to 30% because we already have technologies with a capacity of 27.5 that can go up to 30%. The technology that we are sharing with India will help them to achieve the 20% blending target by 2025-26,” Favaro told Mint during his visit to India earlier this month.
Unwarranted Demand Pessimism Could Lead To Big Oil Price Rally
Last week, oil prices logged a third straight weekly decline, sinking to the lowest level since mid-July as concerns about demand continue to replace the fear of production outages related to the Middle East conflict. Oil markets have been experiencing a shift in sentiment, with a significant decline in speculative buying also putting pressure on prices. According to commodity analysts at Standard Chartered, the shorts have returned to the oil markets with a vengeance. Money-manager shorts across the four main Brent and WTI contracts rose w/w by 31.7 mb to 209.5 mb in the latest positioning data, while money-manager longs fell by 16.0 mb to 456.4 mb. In contrast, the volume of long positions in crude oil has decreased due to macroeconomic fears overshadowing traditional supply and demand factors. The long-short ratio in the Chicago Mercantile Exchange (CME) WTI contract has fallen to 2.0 in the latest data, a sharp decline from 11.4 six weeks ago. According to StanChart, concerns about weakening demand stem from confusion about seasonality and the relationship between exports and production. The analysts note that demand for air conditioning in the Middle East is lower now since the northern hemisphere summer is over, which has freed up higher volumes for export. Traders and speculators are [incorrectly] interpreting this increase in export availability as being indicative of higher supply and a loss of producer discipline. However, the analysts say that the scale of the current speculative move in oil is not justified by fundamental data. For one, India’s oil demand remains robust, climbing 211 kb/d in October to 5.004 million barrels per day (mb/d). Diesel demand was particularly strong, rising 9.3% y/y to 1.88 mb/d, while gasoline demand was up 4.8% y/y to 861kb/d. StanChart’s proprietary demand model shows global demand rising 2.02 mb/d y/y in October and have forecast demand growth will stay above 1.5 mb/d in November, December and January, while 2024 growth is likely to clock in at 1.5 mb/d. Good news for the oil bulls: StanChart notes that the extreme demand pessimism in the oil market back in May proved to be unfounded, and the undershoot in prices laid the ground for a rally that extended to over USD 25/bbl. The analysts have argued that the current price weakness is also a significant undershoot, and oil markets may soon record a big rally comparable to the May bull run. India Takes Over From China The strong demand growth being recorded in India might not be a fluke. Several analysts have predicted that India will replace China as the main driver of global oil demand growth in the near future. A rapidly growing population, which has likely surpassed China’s, is expected to be the main driver of consumption trends in India. Meanwhile, the country’s transition from traditional gasoline and diesel-fueled transport is expected to lag other regions, in sharp contrast to China’s skyrocketing adoption of electric vehicles and clean energy in general. “India was always going to exceed China in a matter of time in terms of being the global demand growth driver, mainly due to demographic factors like population growth,” Parsley Ong, the head of Asia energy and chemicals research at JPMorgan Chase & Co. in Hong Kong, has told Bloomberg. China’s adoption of electric vehicles has been lightning fast, a trend that does not bode well for gasoline demand in the world’s biggest car market. EV sales in China nearly doubled to 6.1 million units in 2022, compared with just 48,000 units sold in India, according to BloombergNEF. BNEF has revealed that EVs are already displacing over 1.4 million barrels a day of oil use globally. On its part, India is in no hurry to ditch traditional fossil fuels. Earlier in the year, India’s coal minister Pralhad Joshi announced that coal will continue to play an important role in the country’s energy sector until at least 2040, referring to the fuel as an affordable source of energy for which demand has yet to peak in India. “Thus, no transition away from coal is happening in the foreseeable future in India,” Joshi said, adding the fuel will continue to play a big role until 2040 and beyond. However, India is unlikely to replicate the mammoth scale of China’s expansive oil network any time soon, with the latter currently consuming three times as much oil. India’s oil consumption grew by ~255,000 barrels per day (bpd) during the first seven months of the current year, helping to grow total consumption to 135 million metric tons in the first seven months of 2023 compared to 128 million metric tons for last year’s corresponding period. However, that growth clip was considerably slower than 415,000 bpd posted in 2021/22 as economies rebounded from the coronavirus pandemic and lockdowns.
IEA Raises Forecasts For Global Oil Demand
Global oil markets won’t be as tight as expected this quarter, as upward revisions to demand are outpaced by upgrades to supplies, the International Energy Agency (IEA) said. The IEA boosted forecasts for world fuel consumption this year on surprising strength in China, and still anticipates a supply shortfall during the fourth quarter. But it will be roughly 30% smaller than previously projected, at about 900,000 barrels a day. “World oil demand continues to exceed expectations,” the Paris-based agency said in its latest monthly report. Yet “world oil supply growth is also exceeding expectations” as “production growth in the US and Brazil has been outperforming forecasts.” The softer outlook fits with a retreat in prices, which briefly slumped to a three-month low below $80 a barrel in London last week. Fears have abated that conflict in the Middle East will disrupt oil exports and worsen inflationary pressures, while the economic backdrop in China has darkened. World oil demand will climb by 2.4 million barrels a day this year – a shade higher than projected last month – to a record annual average of 102 million barrels a day, the IEA said. Record Chinese consumption will account for about 75% of the increase, while US fuel use drove the upgrade to the forecast.
ONGC plans to invest Rs 1000 billion to set up 2 petrochemical plants
India’s top oil and gas producer ONGC plans to invest about Rs 1000 billion in setting up two petrochemical plants to convert crude oil directly into high-value chemical products as it prepares for energy transition, top company officials said on Wednesday. Crude oil, which companies like ONGC pump out from below seabed and underground reservoirs, is a primary source of energy. It is processed in oil refineries to produce petrol, diesel and jet fuel. With the world looking to transition away from fossil fuels, companies around the globe are looking at new avenues to use crude oil. Petrochemicals are chemical products derived from crude oil and used in the manufacturing of detergents, fibres (polyester, nylon, acrylic etc.), polythene and other man-made plastics. At an investor call on the company’s second-quarter earnings, Oil and Natural Gas Corporation (ONGC) Director (Finance) Pomila Jaspal said the firm is looking to build separate oil-to-chemical (O2C) projects. She, however, did not give details. “We have plans to invest Rs 100 billion by 2028 or 2030 in two projects in two separate states,” said D Adhikari, Executive Director and Chief of Joint Ventures & Business Development, ONGC, on the investor call. Our plan is to raise petrochemical capacity to 8.5-9 million tonnes by 2030.” One project is likely to be set up by ONGC on its own and the other in a joint venture. The details were not shared in the call. Demand for petrochemicals, the building blocks for plastics, fertilisers and pharmaceuticals, is projected to remain strong due to their wide range of uses across large industries, including construction, automotive and electronics. Strengthening its chemicals business will also help the state-run oil explorer cut its reliance on the volatile oil market and improve profitability in the long run. ONGC already has two subsidiaries — Mangalore Refinery and Petrochemicals Limited (MRPL) and ONGC Petro-Additions Limited (OPaL) that run petrochemical units at Mangalore in Karnataka and Dahej in Gujarat, respectively. While MRPL is a profit-making entity, OPaL has a “distorted” capital structure, Adhikari said. To correct this, the ONGC board has approved infusing Rs 183.55 billion capital in OPaL to raise its stake in the firm to over 96 per cent from the current 49.35 per cent, he said