Oil Prices Rebound as as Traders Reassess Iran Deal
Crude oil prices reversed much of the losses they suffered on Tuesday as traders sold, expecting a deal between Iran and the United States. Hours later, the wind of trader opinion has changed direction, and now doubts rule the market. Brent crude was trading at $67.59 per barrel, with West Texas Intermediate at $62.49 per barrel, both up after they shed some 2% on Tuesday, falling to the lowest in two weeks. The recovery was also partially a reaction to Iran partially closing off the Strait of Hormuz during a military drill, possibly as a sign to the U.S. that it could block off one of the busiest oil chokepoints in the world. The threat of shutting off the Strait of Hormuz always surfaces when tensions flare up between Iran and the United States—and Israel—but so far Iran has resisted the temptation to really shut it off, likely because this would lead to an immediate escalation with the U.S., which has recently been building an even greater military presence in the Persian Gulf. This means that the strait would not remain shut off for very long, and it could lead to a full-scale war between the two countries, with unsurprising consequences for oil prices. In an update from the negotiations in Geneva, Iran’s foreign minister, Abbas Araqchi, said that the two sides had reached an understanding on the “guiding principles” of their deal. However, finalizing that deal was a way off. “Crude oil prices look poised for a technical rebound … However, a finalised agreement remains distant, and markets remain cautious about the durability of diplomatic momentum,” Indian SS WealthStreet analyst Sugandha Sachdeva said, as quoted by Reuters today. Eurasia Group, meanwhile, estimated there was a 65% chance of the United States launching a military strike against Iran by April.
Asia’s Crude Oil Imports Set for Record High in February
Asia is poised to import record volumes of crude oil this month as top importers boost purchases amid strong runs and a changing geopolitical situation. Asia, the key oil-importing and demand growth region, is expected to import as many as 28.51 million barrels per day (bpd) of crude oil in February—a record high on a daily basis in data compiled by commodity analysts Kpler and cited by Reuters’ columnist Clyde Russell. The February imports would be higher than 27.48 million bpd in December and 26.22 million bpd in January, per the data provided by Kpler. Asia’s biggest crude oil importers, China and India, will drive the jump in February arrivals to a record high. China and India are also the largest and third-largest oil importers in the world, respectively. While Asian imports are booming this month, China and India have started to starkly diverge in sourcing their crude supply. China is boosting imports from both Russia and Saudi Arabia, as deep discounts for Russian oil and lower Saudi term prices are stoking the appetite of Chinese refiners. India, on the other hand, is slashing Russian purchases amid U.S. pressure and is raising imports from the Middle East, West Africa, and the Americas. China’s oil imports from Russia are on track for an all-time high of over 2 million barrels per day in February, as India is withdrawing from Russian spot purchases and supply is now heavily discounted for Chinese independent refiners. China is set to import 2.07-2.08 million bpd of oil from Russia this month, according to data from Vortexa and Kpler cited by Reuters. Moreover, near-term demand for Saudi Arabia’s oil in China is soaring after the Kingdom early this month slashed its official selling prices (OSPs) for Asia to the lowest level versus regional benchmarks in more than five years. India is also boosting imports from Saudi Arabia as it seeks alternatives to Russian crude. Kpler estimates that India’s imports would hit 1.03 million bpd in February, up from 774,000 bpd in January and the highest volume since November 2019.
India retains stake in Russia’s Sakhalin-1 oil and gas project
India’s state-run Oil and Natural Gas Corporation has completed payments to the liquidation fund of the Sakhalin-1 project to retain its 20% stake, Russia’s Interfax reported on Feb. 17. “Our stake in the Sakhalin-1 project is secured, and we are participating in the project. Production and operations are proceeding as usual,” ONGC Chief Financial Officer Vivek Tongaonkar said. “We continue to move forward with the support of the Russian and Indian governments. We have been informed that our equity stake in the company is secured, which is a very positive step, and we will be able to receive part of our delayed dividends.” When the new operator of the production-sharing agreement (PSA) project was established, equity stakes were immediately allocated only to Russian companies — Sakhalinmorneftegaz-Shelf (11.5%) and RN-Astra (8.5%). Foreign partners were required to confirm their consent to receive proportional stakes in the new operator. That consent was provided by ONGC (20%) and Japan’s SODECO (30%). U.S. energy major Exxon Mobil, which held a 30% stake, said it was ending its participation in the PSA project and fully exiting Russia. ONGC faced difficulties formalizing its stake in the new Sakhalin-1 operator because of sanctions imposed on Russian banks and Russia’s countermeasures, Interfax reported. Numerous Western sanctions complicated ONGC Videsh’s ability to transfer funds to Russia in U.S. dollars, while ruble payments require approval from Russian authorities.
Numaligarh Refinery Limited expands capacity to 9 MMTPA
NRL is executing a major expansion project of capacity augmentation from present 3.0 MMTPA to 9.0 MMTPA by installing a 6 MMTPA capacity refinery and associated crude oil terminals & pipeline considering processing of Arab Light (AL) and Arab Heavy (AH) crude oil (AL:AH=30:70). The required additional quantity of crude oil is planned to be imported through Paradip Port in Odisha. A cross country pipeline of around 1640 Km shall be laid from Paradip Port to Numaligarh for transporting 9 MMTPA of imported crude. Part of the Government of India’s Hydrocarbon Vision 2030 initiative to help meet growing demand of petroleum products in northeastern India, NRL’s refinery expansion will increase overall crude oil processing capacity and it is scheduled to be completed by 2025. Environmental Clearance was obtained for the project on 27th July 2020. Approved budget for the project is Rs. 28,026 Cr. Revised cost estimate of Rs. 33,901 Cr. is under approval and being reviewed at MoP&NG. The project implementation activity was started after obtaining Environmental Clearance on 27th July 2020. Contract for all major Project Management Consultancy has been awarded. M/s Technip Chennai was appointed as Managing PMC for the Refinery Project. Additionally, M/s ThyssenKrupp Industrial Solutions and M/s Technip Delhi are appointed as EPCM consultants. Licensors for the main units have been appointed and work for BEDP progressing as per schedule. Subsequently, all studies, clearances, scrap removal & pre-project activities had been taken up and are currently under progress. The award of main plant EPC contracts are lined up for awarding. Procurement of other long lead items commenced in FY’21. With the support of stakeholders and project implementation partners NRL is taking forward the project as per the set time-lines by the Government of India. Project is progressing as per set timelines. The commissioning of the new refinery is anticipated to commence from December 2025 starting with crude distillation unit and progressively commissioning the remaining process unit within next year during FY 2026-27. The crude pipeline is planned to be routed through five states; Odisha, Jharkhand, Bihar, West Bengal and Assam. CTE approval for COIT has been received on 27 Jan 2021. EAC recommendation (MoEF) for CRZ approval has been obtained on 19 May 2021. M/s Engineers India Ltd. has been appointed as PMC for the Pipeline project and Crude Oil Terminal is being constructed based on BOOT basis.
IEA Chief Warns Fracturing Global Order Is Splintering Energy Policy
A fracturing in the “global order” is threatening the harmony in energy policies, the head of the International Energy Agency has warned. “We see a fracturing in the global political order in general, and there are, of course, reflections of that on the energy scene. Different countries are choosing different paths in terms of energy and climate change,” Birol told the Financial Times in an interview. The warning follows the U.S. Environmental Protection Agency’s removal of the so-called endangerment finding, which served as the basis for climate change-focused policies passed in significant numbers during the Biden administration. The finding stipulated that carbon dioxide, methane, and four other gases were harmful to people’s health and well-being. This was the latest move by the Trump administration to dismantle Biden’s climate regulations and legislation as it prioritises energy security—and energy dominance—over emission reduction. Yet even the European Union, which consistently states emission reduction is still priority number-one, has been walking back some of its new regulations and commitments, under pressure from the business world, which has been bearing the cost of those commitments, alongside consumers. The 2035 ban on internal combustion engine cars, for instance, has been renegotiated and is no longer a done deal, and now the authorities in Brussels are mulling over ways to reduce energy costs for industrial consumers in a bid to prevent the complete deindustrialization of the bloc. A revision of emission permit trading is also on the agenda, with the chemicals industry calling for an urgent revamp of the system and a cancellation of the planned phaseout of free carbon permits. Climate change was “moving down the international policy agenda,” Birol said this week, summarizing the latest trends in energy policies. That move down the agenda has even reached China, which this year reduced subsidies for electric vehicles, which immediately affected sales, leading to a 20% monthly drop.