Twitter Youtube Linkedin

Day: December 6, 2023

Saudi Arabia May Have Set the Price of Its Oil Too High

Asian buyers could reduce intake of term supplies from Saudi Arabia in January and look to buy more spot crude cargoes after the world’s top crude exporter reduced the price of its oil to Asia by less than expected, traders and refiners told Bloomberg on Wednesday. On Tuesday, Saudi Arabia cut the price of its flagship crude, Arab Light, loading in January for Asia by $0.50 per barrel over the Oman/Dubai average, the benchmark off which Middle Eastern crude exports to Asia are priced. While the cut was widely expected by the market and was the first reduction in the official selling price (OSP) of Arab Light for Asia in seven months, it was half of what market participants were anticipating. A Bloomberg survey of analysts showed that Saudi Arabia was expected to reduce its official selling price for the Arab Light crude for Asian buyers by around $1 per barrel—to around $3 a barrel over the Oman/Dubai average. The actual price reduction put the price of Arab Light for January loadings to Asia at $3.50 per barrel over the Oman/Dubai quotes. Despite the reduction, traders and buyers at refineries in Asia see the Saudi price as high. “Saudi set the price too high. That could prompt some buyers to nominate less cargoes and turn to buy cheaper crude from other suppliers from the spot market,” a purchase manager with a refinery in Asia told Reuters. Nominations are expected on Wednesday, but at least two buyers in Asia are considering nominating lower contractual supply from Saudi Arabia for January loadings, traders and refiners told Bloomberg. The Saudis cut on Tuesday their OSPs across the board and reduced Arab Light prices to both Europe and the U.S., but the Asian buyers had expected deeper price reductions and are likely to turn to more spot supply from the Gulf amid falling prices signaling softer demand.

Saudi Arabia Cuts the Price of Its Flagship Crude for Asian Buyers

On Tuesday, Saudi Arabia reduced the official selling price of its flagship Arab Light for Asian buyers in January. This is the first price reduction for the last seven months, Reuters noted in a report, but it is a modest one, at $0.50 per barrel. This is half what analysts expected as a price reduction, the report also said. “Saudi set the price too high. That could prompt some buyers to nominate less cargoes and turn to buy cheaper crude from other suppliers from the spot market,” a refinery executive from Asia told Reuters. An analyst survey that Bloomberg conducted a week ago concluded that there was a significant chance for Saudi Arabia to reduce its official selling prices for Asian buyers in January because of intensified competition from other, non-Middle Eastern producers. The influx of non-Middle Eastern oil comes as Brent crude, the global benchmark, is at near parity with the Dubai benchmark, according to PVM Oil Associates. The development, which is unusual, is the result of OPEC production cuts—notably Saudi Arabia’s voluntary cut—that have pushed Middle Eastern oil prices higher, and closer to Brent. As a result, Bloomberg reported last week, non-Middle Eastern oil has become more attractive for bargain hunters in Asia, doubling as evidence of the unintended effects of the production cuts, such as increased demand for less expensive oil. But Saudi Arabia is not just cutting prices for Asian buyers. The world’s top oil exporter also reduced the price of Arab Light for European buyers, by $2 per barrel, and for U.S. buyers, by a modest $0.30 per barrel. Saudi-led OPEC+ last week agreed to deepen production cuts with more members joining the cutters. For now, plans are to only implement the cuts over the first quarter of next year but Saudi Energy Minister Abdulaziz bin Salman said this week they can “absolutely” be extended beyond the end of March 2024.

Assam contributes 14% of total crude oil production in the country: Minister

Union Petroleum & Natural Gas Minister, Hardeep Singh Puri said that Assam contributes 14% of total crude oil production and1 10% of total natural gas production in the country. Answering the question related to production of petroleum and natural gas from Assam and also the steps taken by the government to reduce the import dependence, he further added that the first refinery in Asia was established in Digboi (Assam) in the year 1901, after the commercial scale production of crude oil at Digboi in 1889. He informed to the House that during the last four financial years i.e. 2019-20 to 2022-23, the total royalty paid to the state government is Rs. 9291 Ccore for crude oil and Rs. 851 crore for gas production. He also specifically mentioned about the major projects in the North East region valuing at Rs. 44000 crore including Numaligarh Refinery expansion project, North East Gas Grid, Paradip-Numaligarh crude oil pipeline and NRL Bio refinery etc. The 2G refinery of 185 klpd capacity at Numaligarh will produce Ethanol from Bamboo and will create huge employment opportunities for local farmers. He also informed to the House that the entire North Eastern States are being covered under the City Gas Distribution network in order to provide cheaper and clean cooking/vehicle fuel to the masses. The Petroleum & Natural Gas Minister informed to the House that the government has reduced the “No Go” areas in Exclusive Economic Zone (EEZ) by almost 99% due to which approx 1 million square kilometres is now free for exploration and production activities. The other measures taken by the government include using latest technologies, replacement and revival of sick and old wells etc. The government is infusing capital expenditure of approx. Rs. crore for increasing production in the coming years. He also mentioned about the transformational steps taken to attract foreign investment in the E&P sector and that the PSU companies ONGC and OIL have entered into agreements with the international oil majors (e.g. ExxonMobil, Chevron, TotalEnergies, Shell etc) for collaboration. Puri highlighted the success in achieving the ethanol blending targets before due date (from 1.53% in 2014 to 12% in 2023) and that the country is now marching ahead to have flex fuel engine vehicles. E20 (20% Ethanol blended fuel) is already available at more than 6000 retail outlets and will be available throughout the country by 2025. He also mentioned about the steps taken by the government to promote alternate sources like CBG, Green Hydrogen and EVs.

COP28: Arab Coordination Group Promises $10B To Assist Developing Nations

The Arab Coordination Group will allocate $10 billion through 2030 to facilitate the energy transition, the group said on Tuesday during the COP28 meeting. The $10 billion in funds is designed to drive “a comprehensive and affordable transition to renewable energy in developing countries,” the ACG said on Tuesday. The funds are part of the group’s previous pledge of $24 billion. The ACG will raise funds through the use of green bonds, blended finance, and risk mitigation tools. The group will also support universal access to clean energy and work to enhance resilience to climate change in the food, transport, water, and urban systems sectors. According to the group’s statement, the ACG allocate $15.7 billion last year to 500 financing operations across 80 countries, which went toward “addressing fundamental challenges faced by societies in developing countries, such as food insecurity and climate change.” The largest share of commitments by ACG members went to the energy sector. The Arab Coordination Group (ACG) is a strategic alliance that provides a coordinated response to development finance, comprising four bilateral and six multilateral Arab development financial institutions: Abu Dhabi Fund for Development, Arab Bank for Economic Development in Africa, Arab Fund for Economic and Social Development, Arab Gulf Program for Development, Arab Monetary Fund, Islamic Development Bank, Kuwait Fund for Arab Economic Development, OPEC Fund for International Development, Qatar Fund for Development, and Saudi Fund for Development. It is the second-largest grouping of development finance institutes in the world. The announcement comes as the UN’s COP28 meeting shines a spotlight on climate financing and facilitating the energy transition. “The delivery of a sustainable and equitable energy transition requires stronger collaboration and joint action. The ACG has the capacity to mobilise substantial financing, boasts nearly 50 years of South-South cooperation and has a proven track-record in advancing sustainable development in its partner countries. The OPEC Fund is proud to contribute to this highly welcome ACG initiative through its own Climate Action Plan,” OPEC Fund Director-General Abdulhamid Alkhalifa said in a statement.

Saudi Arabia’s Plan to ‘Artificially’ Boost Oil Demand

As much of the world accelerates its plans for decarbonization, developing its renewable energy capacity to shift away from fossil fuels, it is becoming apparent that many major oil players are unwilling to follow this strategy to combat climate change. While countries such as the UAE and Saudi Arabia have announced ambitious green energy plans, they are not hiding the fact that they will continue to push their oil and gas agendas for decades to come. A recent investigation has shown that Saudi Arabia has plans to artificially raise global oil demand, creating a whole host of moral questions about the future of global energy. A recent U.K. investigation by the Centre for Climate Reporting and Channel 4 News showed officials from Saudi Arabia’s Oil Sustainability Programme (OSP) admitting that the Saudi government is planning to boost demand in Africa and Asia for petrol, oil and diesel products, as part of a public program by the Ministry of Energy. In a recording, an undercover reporter asks, “My impression is that with issues of climate change, there’s a risk of declining oil demand and so the OSP has kind of been set up to artificially stimulate that demand in some key markets?” The Saudi official responds, “Yes. It is one of the aspects that we are trying to do. It’s one of the main objectives that we are trying to accomplish.” The official goes on to say that the plan is supported by the Saudi ruler Crown Prince Mohammed bin Salman. The plan includes a fleet of power station ships off the coast of Africa, using heavy fuel to generate electricity. It also aims to develop technologies to launch ‘supersonic’ commercial aviation, which would require around three times more kerosine than conventional air travel. Saudi Arabia also plans to increase the number of combustion engine vehicles in the Asian and African markets to drive up fuel demand. Meanwhile, officials stated that they aim to counter market incentives and subsidies for electric vehicles at a global level, to maintain the international reliance on fossil fuels, particularly in emerging markets such as Africa. Saudi Arabia has hardly hidden the fact that it intends to continue pumping crude for as long as possible, so long as the global demand is there. In fact, Saudi Arabia is expected to boost its crude output by over 1 million bpd to more than 13 million bpd by the end of 2026 or the start of 2027, it announced in May. Prince Abdulaziz bin Salman said that Saudi Arabia expects to maintain that level of production if demand permits. Saudi Arabia is the second-largest oil-producing member state in the Organisation of the Petroleum Exporting Countries (OPEC), which has a major role in determining global crude production and pricing. In September this year, OPEC responded to an International Energy Agency forecast that suggested that the demand for fossil fuels would peak before the end of the decade by saying the narrative was “extremely risky,” “impractical” and “ideologically driven.” The secretary general of OPEC, Haitham al-Ghais, explained “Cognisant of the challenge facing the world to eliminate energy poverty, meet rising energy demand, and ensure affordable energy while reducing emissions, OPEC does not dismiss any energy sources or technologies, and believes that all stakeholders should do the same and recognize short- and long-term energy realities.” This statement reinforced OPEC’s stance on fossil fuels, suggesting that it believes a weakening global demand for oil and gas is still a long way off. Despite the clear ambitions of Saudi Arabia and OPEC to maintain, or even increase, oil output – so long as the demand is there – the recent phrasing of ‘artificially’ creating oil demand has drawn criticism. This news came just days before the beginning of the COP28 climate summit, which is being held in Dubai. There has been widespread criticism around the latest summit, with worries that the aims for a green transition being promoted at COP are at odds with the objectives of the UAE and other oil-producing Middle East states. This once again raises the question of the need for funding for developing states to participate in a green transition. The head of the World Bank, Ajay Banga, recently emphasized the need for rich countries and companies to help developing countries leapfrog over fossil-fuelled economic growth in favor of developing their renewable resources. Banga said that this would be the only way to achieve net-zero carbon emissions by 2050, in line with the Paris Agreement’s aims, to restrict global heating to below 2oC. Recently, there has been greater optimism around the funding of projects in developing countries to support a green transition. Last week, Indonesia announced a $20 billion investment plan to develop its renewable energy capacity with funding coming from global lenders. Shortly after, Mozambique approved an energy transition strategy worth $80 billion, appealing for funding from wealthy nations. Mozambique is home to one of the largest untapped coal reserves in the world, as well as lots of offshore natural gas, which could remain largely untapped if it is successful at financing its renewable energy sector to support economic growth. Financing schemes such as these could help counter the ambitions of oil-rich countries and major fossil fuel companies to maintain the global demand for fossil fuels by supporting economic growth through the development of renewable resources worldwide.

U.S. Record-Breaking Oil Output One More Blow to OPEC

Record crude oil production in the United States is serving a fresh blow to oil bulls and OPEC, just as the cartel was trying to push benchmarks higher by adopting deeper production cuts. The EIA reported last week that average daily production in September had remained unchanged from August when it hit the record-high rate of 13.24 million barrels. This is happening despite cost inflation and lower international oil prices. And U.S. shale drillers have no plans to drill less. The situation is perhaps worryingly similar to 2014-2016 when oil prices took a dive, falling by 70% when the Saudi-led OPEC hit back at U.S. shale by boosting production to tank prices and sink as many U.S. producers as possible. At the same time, however, the situation is markedly different in several ways. U.S. producers have consolidated and this has made many more resilient to price wars. At the same time, Saudi Arabia and its Gulf allies are probably more risk-averse than they were back in 2014: that oil price crisis prompted Gulf governments to adopt austerity measures for probably the first time in their history. They did not like it. One analyst has already suggested that the Saudis’ only move in the current situation is to open the taps and try to kill U.S. shale all over again. However, this is a sort of a nuclear option that would hurt Saudi Arabia and its OPEC friends as well. But they do have another option: keep cutting. The market did not react to the latest production cut announcement because it was expected. Indeed, it was so copiously reported on, nothing short of a massive production cut would have impressed traders—especially when most of them are computers. The oil market is distorted right now, with the link between futures benchmark prices and physical supply and demand quite broken. Given time, however, this link will reestablish itself as it has always done. And then U.S. shale might become a bigger problem for OPEC. Then again, it might not. U.S. drillers have demonstrated in the past couple of years that the days of “Drill, baby, drill” are over. Discipline and caution in production growth are the new leading themes in the industry. Indeed, much of the increase in production this year, according to executives, is due to better well productivity and not more drilling. All this suggests that production growth is no longer the end goal of the industry. Longevity is, as suggested by the wave of large-scale acquisitions in the shale patch, focusing on the Permian. And longevity does not go hand in hand with constantly growing production. Longevity goes hand in hand with improved long-term planning, which the leaders in the industry are no doubt doing. OPEC will survive lower prices until the realization that there is less physical oil on global markets kicks in. And it will kick in as it always does. Because something many often forget is that not all oil is made equal. Record U.S. production could—and does—affect benchmark prices but that does not mean that U.S. oil can fully replace OPEC—and Saudi—oil. The market wants both, and it still wants a lot of both. Meanwhile, however, OPEC is not just sitting and watching how U.S. shale drillers boost output. It just accepted Brazil as a member, although the Brazilian side made sure to note it will not be a full member and will not take part in production cuts. Maybe not now but at some later point, as Reuters’ John Kemp suggested in a recent column detailing OPEC’s track record of seeking greater clout over global oil markets through expansion among non-U.S. producers.

LNG consumption, imports seeen rising

Not just analysts see a rise in the LNG consumption but also in its imports in order to fulfill the rising demand from various sectors. India’s consumption of Liquified Natural Gas (LNG) is expected to rise further in the coming months on the back of growing demand from the fertiliser and power industries, analysts say. Anticipated lower spot LNG prices will further add to this growth. “Our current forecast for December, January, and February averages at 76 MMcm/d, with an upside risk of 4 MMcm/d to this forecast, as spot prices are now expected to average around $16/MMBtu for the next three months, incentivizing spot buying for the industrial sector,” S&P Global said in a note.