Standard Chartered: Global Oil Demand Will Pick Up Strongly In May And June
Oil prices have held steady week on week despite a significant inventory build in U.S. crude two weeks ago, which was countered by a draw in U.S. crude stockpiles for the week ending April 19th. Next to this, traders have become less concerned about a potential supply disruption in the Middle East. The crude inventory build at the middle of the month triggered fears that oil demand could be weakening; however, Standard Chartered estimates that global inventories will increase by only 74,000 barrels per day in the month of April, a much smaller build compared with 2.2 million barrels per day (mb/d) build in April 2023 and the 1.4 mb/d build in April 2022. StanChart notes that the markets could be more sensitive to this change in trajectory following the strong counter-seasonal inventory draws during the first quarter of 2024. Even better for the bulls, StanChart has forecast that global oil demand will pick up strongly in May and June, exceeding 103 mb/d for the first time in May (at 103.15 mb/d), increasing further in June to 103.82 mb/d. The commodity experts have predicted global inventory draws of 1.53 mb/d in May and 1.69 mb/d in June, tightening physical spreads significantly. StanChart also says that OPEC is unlikely to increase output in the near-term thanks to the stall in the oil price rally despite having room for at least 1 mb/d of extra OPEC output in Q3 without increasing inventories. With the next key ministerial meeting just six weeks away, concerns about demand and the macroeconomic environment are likely to dominate the meeting. StanChart says we are likely to record a 1.6 mb/d Q3 draw in stocks if there is no increase in OPEC output, compounding the price effect of a H1-2024 draw of 1.1 mb/d. U.S. Sanctions on Iranian Oil Recently, the Biden administration passed new sanctions on Iran’s oil sector as part of the $95-billion foreign aid package to Ukraine, Israel and Taiwan. In a move aimed at reducing Iran’s oil trade with China, the broadened sanctions now target Chinese banks that conduct transactions involving Iranian crude and products. The sanctions now include foreign refineries, vessels, and ports that knowingly process, transfer, or ship crude oil in violation of existing sanctions. The new sanctions could prove significant in disrupting market fundamentals considering that Iran currently produces about 3 million b/d and is expected to increase output by a further 280,000 b/d this year. StanChart has predicted that whereas the upcoming U.S. presidential election may influence the timing of the next swing down in Iranian exports, Iran’s oil flows are bound to take a hit regardless of who ascends into the Oval Office in 2025. The analysts note that existing U.S. policy instruments were enough to drive Iranian exports down to close to zero in late 2020, before the international context, and the associated implementation policies, changed. StanChart has argued the Biden administration has room to start implementing the sanctions immediately despite the risk of increased fuel prices during an election year. StanChart notes that the record-high on the day of a U.S. presidential election is $3.492/gal in 2012 (when the incumbent won), equating to about $4.80/gal in 2024 money terms after adjusting for consumer inflation. That’s $1.14/gal higher than current prices, with the U.S. national gasoline price average at $3.66 per gallon. StanChart says that whereas recent U.S. international oil policy has clearly been designed with a view to moderating oil price effects, it does not mean that the U.S. has necessarily chosen a policy of minimum pressure on Iranian and Russian oil exports. Meanwhile, the natural gas outlook appears to be getting more bullish. A late cold snap has led to a sharp deceleration in European gas inventory builds, with EU inventories standing at 72.01 billion cubic meters (bcm) on 21 April according to Gas Infrastructure Europe (GIE) data. The w/w build was just 0.427 bcm, significantly slower than the 2.005 bcm build for the week to 14 April. StanChart, however, says the cold snap might not last long, meaning Europe is likely to still be faced with a gas glut in the summer. The U.S. gas outlook is, however, more bullish after National Weather Service (NWS) meteorologists forecast above-average summer heat across the vast majority of the country, setting the stage for increased cooling demand.
Indian Gas Exchange Launches Small-Scale LNG Contracts
The Indian Gas Exchange (IGX) having received approval from the Petroleum and Natural Gas Regulatory Board (PNGRB) launched contracts of Small-Scale Liquefied Natural Gas (ssLNG) on its platform. This move marks a significant step towards addressing the demand of natural gas in areas that are not connected to the national gas grid. The introduction of ssLNG contracts on IGX aims to address the growing gas demand from industries and CGD (City Gas Distribution) companies that do not have access to pipeline networks. Through ssLNG, they can now procure liquefied gas through LNG tankers at competitive rates under daily, fortnightly and monthly contracts. Initially, this contract is launched at Dahej & Hazira LNG Terminals. Later, it will be launched at other terminals namely Dhamra, Mundra, Ennore, Kochi, and on-land ssLNG stations at Vijaipur. Speaking at the occasion, Mr. Anjani Kumar Tiwari, Member, PNGRB said, “Small-scale LNG serves as the cornerstone for our gas-based economy, enabling us to expand our reach beyond traditional pipelines. On supply side, it can bring gas from remote and difficult fields and on demand side, it can help an industry source gas which is not connected to the gas grid. With this vision, we provided approval to IGX for launching ssLNG contracts on their platform. PNGRB endeavors to be a facilitator to support the growth of ssLNG in India by providing a comprehensive regulatory framework. We will also be continuously evaluating the present regulations and making amendments to support the industry in navigating challenges.” Speaking at the occasion, Mr. D.K. Saraf, Ex-Chairman, PNGRB said,” While pipelines stand as the optimal means for gas transportation, the geographical expanse of our nation poses challenges in reaching every corner. Small-scale LNG emerges as a solution, bridging this gap and enabling customers to access the advantages of natural gas, thus facilitating a transition towards cleaner energy sources. I extend my sincere compliments to IGX for collaborating with PNGRB in launching ssLNG in India. Together, we can pave the way for widespread adoption of small scale LNG and create a cleaner, more sustainable energy future for all.” Top of Form Speaking at the occasion, Mr. Rajesh K Mediratta, MD & CEO, Indian Gas Exchange said, “We envision IGX providing marketplaces for competition, flexibility and transparent price discovery. The introduction of ssLNG contracts is to fill the void in ssLNG space. With the demand for road-transported LNG projected to increase substantially over the coming years, our initiative will provide city gas distribution networks, industries & LNG dispensers a competitive gas pricing that will optimize their costs. By facilitating the trading of ssLNG contracts, we are not only enabling the efficient transportation of larger volumes of natural gas via trucks but also widening access to a cleaner fuel across the country.” Natural gas is primarily supplied through pipelines in the country. As a result, industries and commercial establishments without access to the grid primarily rely on trucks for LNG transportation. The demand for road-transported LNG is projected to increase to 5 MMSCMD over the next five years. ssLNG contracts presents a win-win situation for both the buyers as well as sellers. It would serve as a platform for sellers, who can come and trade LNG. Transporting natural gas in liquefied form via trucks will allow larger volumes to be transported, potentially making it economically viable for buyers not connected to pipelines. Further, it will also ensure a transparent and fair procurement process with enhanced payment security.