The Oil Market Is Tightening to 2016 Levels
Last week, the International Energy Agency reported that global oil demand growth is losing momentum, with demand growth clocking in at 1.4 mb/d in January, down from 2.8 mb/d in 3Q23 to 1.8 mb/d in 4Q23. According to the IEA, the expansive post-pandemic demand growth phase has largely run its course. Thankfully, falling supply is expected to counter slowing demand growth with non-OPEC supply by the U.S., Brazil, Guyana, and Canada expected to come in at 1.6 mb/d this year compared to 2.4 mb/d in 2023. The best part for oil bulls, however, is that oil markets are tightening, which could help sustain the ongoing oil price rally. The IEA has revealed that global observed oil stocks plummeted by about 60 mb in January, with on-land inventories falling to their lowest level since 2016. In contrast, December global stocks rose by 21.6 mb thanks to a surge in oil on water (+60.7 mb) more than offsetting draws in on-land inventories (-39 mb). Brent crude has rallied 7.9% so far in the month of February to trade at $83.42 per barrel while WTI crude has gained 9.9% to trade at $79.43 per barrel. Whether or not the markets will continue tightening will largely depend on whether OPEC+ can maintain discipline and unwind its production cuts gradually. Estimates by various energy agencies of changes in the call on OPEC; i.e. the level of OPEC crude oil output that would keep inventories constant given changes in non-OPEC supply, oil demand, and OPEC non-crude liquids supply are quite varied at this point. With the exception of the IEA, estimates of the call on OPEC have generally trended upwards, implying an improvement in overall market fundamentals. These figures represent how much OPEC could increase output from Q2 onwards without global inventories increasing The lowest estimates are those of the Energy Information Administration (EIA) at 0.6 million barrels per day (mb/d) and the IEA at 0.7 mb/d, while the highest estimates are by Standard Chartered at 1.8 mb/d and the OPEC Secretariat at 2.7 mb/d. Brent Could Approach $100 Previously, commodity analysts at Standard Chartered have argued that oil fundamentals are in better shape than oil prices suggest, adding that the market is heavily discounting geopolitical risks. StanChart has noted a sharp improvement in oil balances in the current year compared to 2022 According to StanChart, the small global oil surplus we are currently witnessing is due to seasonal weakness in the month of January, noting that the surplus is much smaller than the 20-year average. StanChart has revealed that there’s been a January inventory draw in only three years since 2004, with the first month of the year averaging a build of 1.2 million barrels per day (mb/d). Last year, the month of January recorded a mega-surplus to the tune of 3.4 mb/d; the third largest surplus in any month over the past two decades. StanChart puts this year’s January surplus at just 0.3 mb/d. StanChart says Brent price is supposed to hit at least $90 per barrel to truly reflect market fundamentals. StanChart has predicted that Brent will average $92 a barrel in the first quarter, good for a 19% jump from Dec. 31. The analysts have forecast that Brent will hit $98 per barrel in the third quarter; $109 in 2025 and $128 in 2026 before pulling back to $115 in 2027. ICE Brent futures gained $5/bbl during January, marking their first monthly gain since September. J.P. Morgan is another oil bull, and says the oil market outlook “continues to project a tightening market with prices rising from here by another $10 by May.” JPM’s forecast assumes that OPEC+ leaders will unwind 400K bbl/day of cuts from April but has not assigned a risk premium from the Middle East turmoil. JPM says crude shipments on a 30-day moving average basis are down 1.3M bbl/day from the October peak. The U.S. Energy Information Administration (EIA) is much less optimistic, and has projected Brent to average $82.42 in 2024 and $79.48 in 2025 while WTI will average $77.68 a barrel for 2024 and $74.98 in 2025.
Washington’s biggest sanction wave on Russian oil threatens to engulf India
Washington is slowly but steadily cutting the umbilical cord that links Russian oil to India—shipping. The US, on Friday, unleashed the largest sanctions package, partly directed at Sovcomflot, Russia’s state-owned shipping behemoth, and on 14 of its vessels, which are some of the biggest carriers of Russian oil to India on a regular basis. Since January 2023, these newly-sanctioned tankers have transported around 68 cargoes to India, equivalent to around 6 per cent of the total Russian crude imports last year. That’s approximately 48 million barrels of oil, more than what Nigeria, a key crude oil supplier to India prior to the Ukraine war, supplied in 2023, according to calculations .
Qatar to boost gas output with new mega field expansion: minister
Qatar on Sunday announced new plans to expand output from the world’s biggest natural gas field, saying it will boost capacity to 142 million tonnes per year before 2030. The new North Field expansion, named “North Field West”, will add a further 16 million tonnes of liquefied natural gas (LNG) per year to existing expansion plans, Qatari Energy Minister Saad al-Kaabi said at a press conference. “Recent studies have shown that the North Field contains huge additional gas quantities estimated at 240 trillion cubic feet, which raises the state of Qatar’s gas reserves from 1,760 (trillion) to more than 2,000 trillion cubic feet,” said Kaabi, who also heads the state-owned QatarEnergy firm. These results “will enable us to begin developing a new LNG project from the North Field’s western sector with a production capacity of about 16 million tonnes per annum,” he said. This will bring Qatar’s production capacity to 142 million tons once “the new expansion is completed before the end of this decade” — a nearly 85 percent rise from current production levels, Kaabi added. The QatarEnergy chief said the firm will “immediately commence” with engineering works to ensure the expansion is completed on time. Qatar is one of the world’s top LNG producers alongside the United States, Australia and Russia. Asian countries led by China, Japan and South Korea have been the main market for Qatari gas, but demand has also grown from European countries since Russia’s war on Ukraine threw supplies into doubt. The latest expansion plans follow a flurry of announcements for longterm Qatari gas supply deals. Earlier this month, Qatar said it would supply 7.5 million tonnes of LNG per year for 20 years to India’s Petronet, with the first deliveries expected from May 2028. And at the end of January, QatarEnergy announced a deal with US-based Excelerate Energy to supply Bangladesh with 1.5 million tonnes of LNG per year for 15 years. Last year, Qatar inked LNG deals with China’s Sinopec, France’s Total, Britain’s Shell and Italy’s Eni.
Mitsui O.S.K. Lines, soon to be a prized catch for GIFT City, in talks to build tanker at L&T yard
Mitsui O.S.K. Lines, Ltd (MOL), the Japanese transport giant and the world’s third largest ship owner by fleet size, will likely open a unit in the Gujarat International Finance Tec-City (GIFT City) for leasing and owning ships and has separately opened talks with Larsen & Toubro Ltd (L&T) to build an oil tanker at its Kattupalli yard near Chennai under the ‘Make in India’ program, multiple sources said. The GIFT City is India’s first International Financial Services Centre (IFSC) under the Special Economic Zone Act – a tax-free offshore enclave within India that seeks to onshore India focused business carried out in other parts of the globe. MOL’s plan is to open a new entity in GIFT City and use it to lease or build vessels in India under the ‘Make in India’ initiative.
FACT to set up green hydrogen plant jointly with OIL
Fertilisers and Chemicals Travancore Limited (FACT) plans to set up a small green hydrogen plant at its premises in Kochi, in collaboration with Oil India Limited. The two major Central PSUs signed a memorandum of understanding (MoU) in Noida on February 22 to explore opportunities in the domain of green hydrogen, including green ammonia/green methanol and other derivatives. It is learnt that FACT is already exploring possibilities of setting up a solar farm at its massive water reservoir on its Ambalamedu campus. The Initial explorations and study of potential is under way. The solar power generation facility will be carried out by FACT on its own, while the Green Hydrogen project will be a joint venture towards more environment-friendly operations and a sustainable future. Apart from State grid power, FACT now meets its energy requirement through use of liquefied natural gas (LNG), which is considered a clean fuel when compared to other fuels used earlier by the company. FACT consumes around 10 million mmBtu worth of LNG a year. FACT previously used a variety of fuels since its inception including firewood. In the late 1940s, firewood used to be brought in country boats from Malayattoor forests to be used to produce ammonia through wood gasification process.
IOC, GAIL, ONGC fined for third straight quarter for failure to appoint directors
State-owned oil and gas giants including IndianOil, ONGC and GAIL (India) have been slapped fines for the third straight quarter for failing to meet listing norm requirements of having the requisite number of directors on their board. Stock exchanges have fined oil refining and fuel marketing giant Indian Oil Corporation (IOC), explorers Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL), gas utility GAIL, and refiners Hindustan Petroleum Corporation Ltd (HPCL) and Mangalore Refinery and Petrochemicals Ltd (MRPL) a cumulative Rs 3.25 million, stock exchange filings showed. In separate filings, the companies detailed the fines imposed by the BSE and NSE for either not having the requisite number of independent directors or the mandated women director in the third quarter ended December 31, 2023, but were quick to point out that appointment of directors was done by the government and they had no role in it. The companies had faced fines for the same reason in the previous two quarters as well. The six PSUs in separate filings said they have been slapped with a fine of Rs 5,42,800 each for the third quarter. While ONGC and its subsidiaries HPCL and MRPL, GAIL and OIL faced fines for not having the required number of independent directors on their board, IOC for not having a woman independent director on its board.