India’s Russian crude imports prevented price surge, ‘havoc’ in global oil market, says petroleum ministry
Global crude oil prices would have surged and created “havoc” in the international oil market had India not ramped up oil imports from Russia in the aftermath of Moscow’s February 2022 invasion of Ukraine, the petroleum and natural gas ministry told the department-related parliamentary standing committee. “If they (Indian refiners) had not imported Russian oil into India, which may be a big number of 1.95 million barrels per day, that deficiency would have created a havoc in the crude oil market and the prices would have shot up by about $30-40,” a petroleum ministry representative was quoted as saying in a recent report of the standing committee on petroleum and natural gas. The report was tabled in Parliament on December 20. “The crude oil market is such that in the market of 100 million barrels per day, if the OPEC (Organization of the Petroleum Exporting Countries) says that they are going to reduce it by one or two million barrels per day, prices increase by 10 to 20 per cent and reach up to $125-130. If India does not absorb–I would call it absorption–1.95 million barrels per day, these prices would have reached $120-130. It would have created a havoc,” the petroleum ministry representative added. The report did not name the representative. Usually, senior bureaucrats of the petroleum ministry represent the ministry before the standing committee. India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its requirement. The country has a refining capacity of over 250 million tonnes per annum, or 5 million barrels a day.
Year 2023 | From $82 to near $100 and back: How Brent crude moved in 2023 over OPEC+ cuts and more
Crude oil benchmark Brent futures has moved sideways in the last one year – between January to December 2023, majorly due to the supply cuts announced by the Organisation of Petroleum Exporting Countries and its allies (OPEC+) as well as the Israel-Hamas war. Oil majors including Saudi Arabia and Russia have since then defended the oil production cuts as a precautionary measure, aimed at the ‘stability of the oil market’. Among other reasons, a stronger US dollar and the spike in US bond yields in the last few months have also dictated the movement of crude oil prices. However, the latest meeting by OPEC+ turned out to be disappointing for the uptrend of prices as investors saw limited impact of the supply cuts on oil markets. What’s been the movement of crude oil prices in 2023? The Group of Seven (G7) industrialized countries in 2022 imposed a price cap of $60 per barrel on Russian oil shipments in response to Russia’s invasion of Ukraine. Following this, crude prices remained volatile going into January 2023 and Brent crude hovered around $82 per barrel during the month. In April 2023, OPEC+ announced oil production cuts of around 1.16 million barrels per day (bpd) in a surprise decision. The shock cut, led by Saudi Arabia, immediately drove crude oil prices 8 per cent higher to $83.95 a barrel, which at the time – was the highest rise in more than a year. The voluntary cuts started from May 2023 and were put in place to last until the end of the year. OPEC+ met for its scheduled oil output policy decision in June 2023 and announced that it will reduce overall production targets from 2024 by a further total of 1.4 million bpd. OPEC nations produce around 30 per cent of the world’s crude oil. Saudi Arabia is the largest oil producer within the cartel, producing more than 10 million bpd. OPEC+ pumps around 40 per cent of the world’s crude.
Tankers carrying 5 million barrels of Russian oil fail to reach India
Six vessels carrying almost 5 million barrels of Russian oil failed to reach their destinations in India, some idling kilometers off the coast for weeks without providing a reason, Bloomberg reported on Dec. 20. Recent U.S. sanctions targeting the violators of the $60-per-barrel price cap could partially be the reason, the news outlet speculated. The U.S. Treasury Department sanctioned the NS Century ship, belonging to the Russian Sovcomflot shipping company, on Nov. 16 for violating the price cap. Two days later, the vessel halted south of Sri Lanka while carrying Russian oil to the Indian port of Vadinar, Bloomberg wrote. In the past week, NS Century was later reportedly joined by two other Sovcomflot-owned tankers carrying oil to Vadinar. Two more tankers heading to another Indian port, Paradip, also came to a sudden stop before reaching their destinations, and another ship may soon join them, according to Bloomberg. Five of the listed vessels belong to Sovcomflot. Both the U.S. and the EU began ramping up sanctions to enforce the price cap on Russian seaborne crude. The measure was imposed last year to limit Moscow’s oil revenue without destabilizing global markets.
GAIL Gas opens 22nd CNG outlet at Surathkal in Dakshina Kannada
GAIL Gas Limited (GGL) opened its another Compressed Natural Gas (CNG) station at HPCL Vijay Fuels, Surathkal on Tuesday. This is the 22nd CNG station of the company in Dakshina Kannada. The station can serve more than 1,000 small vehicles, LCVs and buses and trucks in a single day. As it is on the NH 66, it will encourage long distance journeys on CNG, a company release said. It has plans to start CNG stations at Mangladevi, Kanyana, Kadanjebettu, Puttur, Nelyadi Ullal and Talapady in the district in the near future, it said R.K. Jain, Director (Finance), GAIL (India) Limited and Director, GAIL Gas Limited and Ajay Tripathi, Executive Director GAIL (India) Limited were present on the occasion.
Oil Prices Poised to Bounce Back in 2024
Crude oil prices are at lows not seen in months. There seem to be few factors capable of changing that. Yet commodity analysts seem to be more bullish when it comes to 2024. The key to that bullishness is demand. Even after the IEA projected faster than previously expected demand growth for next year, traders took note and analysts wrote notes. Per these notes, the five top U.S. banks expect a median Brent price of $85 for 2024. And that’s without any major supply disruption. Goldman Sachs recently cut its oil price forecast for 2024 to between $70 and $90 per barrel of Brent. Previously, the bank had expected prices between $80 and $100 per barrel. As a single number, Goldman’s analysts expected an average Brent price of $92 before the latest revision, Bloomberg reported last week, but now they may have trimmed that too. The bank cited higher U.S. oil production as the reason for the revision, as the country’s output and oil exports hit a record this year. However, forecasts for 2024 are for much slower growth next year, according to the EIA. It sees 2024 growth at barely 180,000 bpd, compared to some 1 million bpd this year. Citigroup, meanwhile, is forecasting an average 2024 oil price of $75, which is the lowest of the five forecasts and in line with Citi’s contrarian stance this year. This stance proved closest to what actually happened to oil prices this year. Citi had pegged the annual average for Brent at $80, and it is close to that. Per Citi analysts, the reason for the guarded price prediction is slower demand growth resulting from what they called “economic and energy-transition headwinds,” as quoted by Bloomberg. Citi also cited higher U.S. output as another reason for the low forecast and projected OPEC+ will stick to its deeper output cuts to put a floor under prices. The other three big Wall Street banks have set their 2024 Brent price projections at between $83 per barrel and $90. JP Morgan has the lowest price forecast after Citi, at $83 per barrel of Brent, while Bank of America is the most bullish, expecting Brent to average $90 per barrel next year. Morgan Stanley sits in the middle with a price forecast of $85 per barrel. Basically, the top five Wall Street lenders expect oil prices next year to stay within the range they’ve been over the past three months or so. Higher oil supply from non-OPEC producers is one reason. This supply is widely seen being led by the United States, but other producers such as Guyana, Brazil, and Norway are also raising production—even as their leaders signed up for a reduction in hydrocarbon use at COP28. The other part of the price equation—demand—is rather bullish. OPEC expects it to expand by 2.2 million barrels daily next year, and even the International Energy Agency, a chronic bear lately thanks to its transition focus, said in its latest Oil Market Report that oil demand will grow faster than previously expected in 2024. The revision is equal to 130,000 bpd, bringing the total demand growth rate, per the IEA, to 1.1 million bpd—half of what OPEC has forecast. The IEA attributed its revised forecast to a better economic outlook and lower oil prices, which traditionally spur greater demand for the commodity. The agency is not so impressed by non-OPEC supply growth, although it does expect non-OPEC producers to add 1.2 million bpd to global supply, covering the projected demand growth plus change. All this makes for a very neat 2024 concerning oil prices. Asia is once again expected to shoulder the bulk of demand growth, led by China and India. Disappointment may be on its way as some expectations of Chinese demand prove to have been overly optimistic, adding weight to prices. On the other hand, the increasingly frequent news of ship attacks in the Red Sea by the Yemeni Houthis and, most recently, by pirates that seized a Malta-flagged bulk carrier bound for Turkey could turn out to be bullish for prices, even though oil tankers have not yet been attacked. In the meantime, there seems to be little change of major production outages. The market has successfully shrugged off the 450,000-bpd drop in oil supply from Kurdistan as the Kurdish and Iraqi governments continue to debate the terms of resuming the exports. Libya appears to be relatively stable for now. And Venezuela and Guyana have declared their willingness to diplomatically resolve a shared territorial dispute. The global oil picture is quite bearish, indeed. In fact, those five banks’ price forecasts may need to be revised further down unless OPEC+ decides to cut even deeper, which would be a risky move. As lower prices stimulate demand, however, things may begin to change in the price department. It’s the good old oil cycle yet again.
OPEC’s 2024 Crude Oil Production Cuts, Explained
On November 30, 2023, OPEC (Organization of the Petroleum Exporting Countries) and its allies, collectively known as OPEC+, agreed to cut oil production by 1 million barrels per day (bpd) starting in January 2024. This decision was driven by several factors, but it might be helpful to consider OPEC’s motivations. In much of the world – particularly countries that are net crude oil importers – OPEC’s motivations are frequently at odds with the economic desires of those countries. OPEC seeks to maximize the value of the crude oil reserves of member countries. This is generally official government policy. Contrast that to the government policies of the U.S., which generally revolve around a desire for stable, but low prices for energy. That isn’t necessarily what U.S. oil companies seek, so that often pits the objectives of the U.S. government against those of the U.S. oil industry. In OPEC countries, the goals are aligned. In many cases, the governments of these countries generate most of their revenues from the sale of crude oil into the export market. So, OPEC seeks the highest possible oil price they can get, without putting the world into recession, or creating incentives for rival production and conservation efforts. While controlling supply to influence prices, OPEC also wants to maintain or grow its share of global oil production and export volumes. Losing too much market share undermines its ability to impact the market. Prior to the shale oil boom in the U.S., OPEC could more easily achieve these objectives. But, due to the surge of U.S. oil production, it is impossible now for OPEC to prop up prices without also providing more incentives for U.S. production. Thus, the cartel has lost some power over pricing. Nevertheless, OPEC and its allies produced about 50% of the world’s oil in 2022, and they control over 70% of the world’s proved reserves. Therefore, they do still possess significant power to influence global oil prices. But it’s often analogous to turning a big ship. It takes time for OPEC’s actions to impact the market. OPEC will announce a production cut, and if they follow through it will eventually dry up some of the excess supplies. At the same time, non-OPEC countries like the U.S. are increasing production, which helps offset OPEC’s production cuts. It’s like an arms race between OPEC and the U.S., and so far, the U.S. has been largely able to increase production enough to negate most of the impact of OPEC’s cuts. One final thought is that OPEC has wielded production cuts as a political weapon. This is one reason I expected the cartel to cut production, and why they may cut production again next year as we head toward the presidential election. I think OPEC members like Saudi Arabia and allies like Russia would prefer to see Donald Trump reelected, and they may therefore try to drive prices up ahead of the election. It will be harder for President Biden to win reelection if gasoline prices are skyrocketing ahead of the election, so this will be something to watch in 2024.
Netherlands overtakes India as Nigeria’s biggest oil buyer
The Netherlands has overtaken India as the biggest buyer of Nigerian crude oil, marking a change in the dynamics of the West African nation’s energy exports. Data from the National Bureau of Statistics showed the Netherlands bought Nigerian crude oil worth N2.5 trillion in the first nine months of 2023, while India’s imports from Africa’s top producer was valued at N1.6 trillion. Indonesia and France occupied second and third positions as they purchased Nigerian crude worth N1.72 trillion and N1.65 trillion respectively as of September 2023.
Threatening the oil market was a step too far by the Houthis
With each passing day, the global shipping crisis intensifies due to repeated attacks by Houthi rebels from Yemen on vessels in and around the Bab el-Mandeb strait. These attacks, backed by Iran, are prompting major international shipping companies to announce a halt to navigation in the Red Sea, opting instead for the longer route around Africa’s Cape of Good Hope. Just on Monday, British Petroleum, a giant in the energy sector, declared that its tankers would not sail in the Red Sea until further notice – a statement that serves as a warning signal to energy markets worldwide and ironically brings the potential solution to the crisis under closer scrutiny. For the global energy market, the significance of the Suez Canal, Bab el-Mandeb and the Red Sea is paramount. The majority of oil and natural gas exports from Gulf countries to Europe and North America pass through these vital waterways, both by sea and through pipelines. In the first half of the current year, shipments of oil through these routes constituted approximately 12% of the total globally traded oil at sea. Likewise, liquefied natural gas shipments through these pathways represented 8% of the global trade in this commodity, according to data published by the U.S. Energy Information Administration. The Suez Canal, connecting the Red Sea to the Mediterranean, is not the sole means of transporting oil from the Red Sea. The Sumed or Suez-Mediterranean pipeline, established by several Arab countries in 1974, serves as an alternative for oil transportation outside the Suez Canal. Spanning a submarine-like structure in the Gulf of Suez and extending through Egyptian territory to the Mediterranean port city of Alexandria, this pipeline can handle up to 2.5 million barrels per day. However, its capacity largely depends on the entry of tankers into the Red Sea. In other words, more oil barrels pass through the Red Sea than through Bab el-Mandeb and the Suez Canal combined. The situation is different for liquefied natural gas, as the minimal amounts of this commodity in the Red Sea.
Russia eyes additional oil export cuts of about 50,000 bpd in December
Russia said on Sunday it would deepen oil export cuts in December by potentially 50,000 barrels per day or more, earlier than promised, as the world’s biggest exporters try to support the global oil price. Saudi Arabia and Russia, the world’s two biggest oil exporters, called in December for all OPEC+ members to join an agreement on output cuts after a fractious meeting of the producers’ club. Russian President Vladimir Putin visited Riyadh shortly after the meeting of OPEC+, which brings together the Organization of the Petroleum Exporting Countries (OPEC), Russia and other allies. Russian Deputy Prime Minister Alexander Novak, Putin’s top oil and gas point man, was quoted by Russia’s three main news agencies as saying that Russia would deepen cuts beyond the 300,000 barrels per day of cuts already agreed for this year. “Already in December we will add additional volumes,” Novak was quoted as saying by Interfax news agency. “By how much, we’ll see based on the results of December – there may be an additional 50,000 bpd, maybe more.”
Analysts Say Oil Prices Unlikely To Hit $100 In 2024
Surging non-OPEC+ oil production and significant storage space held by the OPEC+ group will continue to put downward pressure on crude oil prices next year, analysts say. Barring a major geopolitical escalation resulting in a large supply outage—which cannot be discounted—, oil prices are unlikely to reach $100 a barrel in 2024 as American oil production and exports are rising faster and higher than expected, and market sentiment about demand is downbeat, especially for the first half of 2024. With its latest announced cuts for the first quarter of 2024, the OPEC+ alliance is trying to keep tight control over the global oil supply. But the group faces record-breaking U.S. oil production and rising supply from other non-OPEC+ producers, including Brazil, Guyana, Canada, and Norway. Brazil has been invited to be part of OPEC+ starting in January 2024, but it has already said that it would not take part in any production cuts. OPEC+ is trying to keep a floor under oil prices (at the expense of its market share), but it may not succeed in propping up prices too much. This is especially true if the group fails to extend the cuts beyond March 2024, analysts say. The group’s production cuts “help defend a floor in oil prices, but more cuts equate to more spare capacity,” Stacey Morris, head of energy research with VettaFi, told MarketWatch. “That dynamic arguably puts a lid on the upside for oil prices,” Morris added. Warren Patterson, Head of Commodities strategy at ING, wrote in a note earlier this month that “given the scale of cuts we are seeing, OPEC is sitting on a substantial amount of spare capacity.” OPEC, including Iran, has some 5.5 million barrels per day (bpd) of spare capacity, according to ING. “This spare capacity should also offer some comfort to markets given that should we see significant price strength, one would expect this capacity to start to return to the market,” Patterson said. At any rate, the oil market management from OPEC+ would be key to where prices will go next year, he noted. ING sees Brent Crude trading in the low $80s early next year, while it forecasts Brent to average $91 per barrel over the second half of 2024, when the market will return to deficit. However, non-OPEC+ supply is growing at a faster pace than previously forecast, led by record U.S. crude oil production, which continued to soar despite a flat or falling rig count compared to this time last year. The United States is “now the global swing producer, not Saudi Arabia, and especially not Russia,” Robert Yawger, executive director for energy futures at Mizuho Securities USA, told MarketWatch’s Myra Saefong. The United States is now on track to deliver a supply increase of 1.4 million bpd 2023, accounting for two-thirds of the 2.2 4 million bpd non-OPEC+ production growth this year, the International Energy Agency (IEA) said in its monthly report this week. At the same time, OPEC+ production is set for a 400,000 bpd decline, which would reduce its market share to 51% in 2023 – the lowest since the bloc’s creation in 2016, the agency added. Record-high U.S. oil production is a “huge problem” for OPEC+, Paul Sankey at Sankey Research told CNBC after the latest OPEC+ meeting at the end of November. The solution for Saudi Arabia could be to just flush the soaring non-OPEC+ output out by flooding the market with crude and thus sinking oil prices to levels below the U.S. profitability threshold, Sankey said. If OPEC+ were to unwind the cuts after March 2024, oil prices could crash by 30%-50% if most of the spare capacity comes online, Citigroup’s global head of commodities research, Max Layton, told Bloomberg TV this week. “They can balance this market and keep these prices at $70 to $80 if they all work together,” Layton said. If OPEC+ producers continue to work together and not choose to flood the market with oil to flush out the U.S. competition eating into their market share, they may have to continue a tight control on supply for the next few years, according to Rapidan Energy Group. “For the next several years, at least, continually unified, vigilant, and effective OPEC+ supply management will be required to prevent a collapse in oil prices,” Rapidan said in a report this week carried by Bloomberg. “While oil demand isn’t about to peak, neither is non-OPEC+ supply growth,” Bob McNally, Rapidan’s founder and a former White House official, said. “So OPEC+ has its work cut out for it over the next few years. But toward the end of the decade, a price boom will follow the bust. Buckle up.”