Petrol, diesel may get cheaper as OMCs become profitable
Petrol and diesel prices in the country are expected to come down soon after remaining unchanged for over a year. The government has begun discussing ways to pass on the benefits of softening global crude prices to consumers before the 2024 Lok Sabha elections, according to a report by ET Now. In contrast to peak losses of ₹17 per litre on petrol and ₹35 per litre on diesel in 2022, OMCs are now making a profit of ₹8-10 per litre on petrol and ₹3-4 per litre on diesel. According to the report, the oil ministry has already discussed crude versus retail price scenarios with OMCs. Since oil marketing companies (OMCs) are now making profits, the government has begun discussions on the matter to give some relief to the people, the report further added. The finance ministry and the oil ministry are pondering over the current crude oil price scenario. In addition to OMC profitability, they are discussing global factors, the report noted. Why fuel is expected to get cheaper? Due to strong profits in the last three quarters, OMCs’ overall losses have narrowed. The combined profit of three OMCs – IOC, HPCL and BPCL – was ₹280 billion last quarter, the report further stated. Since OMCs’ under-recovery has ended, the government thinks that the consumers must also reap the benefits. Earlier this week, oil prices fell on the back of concerns about a drop in demand and continued uncertainty over the depth and duration of OPEC+ supply cuts.
India’s refining capacity to rise 22% by 2028, says minister
India will expand its refining capacity by about 22% from the current 253.92 million metric tons per year to meet its growing energy demand, junior oil minister Rameswar Teli said on Monday. Data compiled by Centre for High Technology, a technical wing of the federal oil ministry, shows the refining capacity of Indian refineries is projected to increase by about 56 million tons per year, equating to about 1.12 million barrels per day, by 2028, Teli said in a written statement to lawmakers. The minister said capacity expansion is likely to be “adequate” to meet India’s projected demand for refined fuels in the long-run.
PNGRB chairperson meets Himanta Biswa Sarma, highlights importance of City Gas Distribution
Dr. Anil Kumar Jain, Chairperson, Petroleum and Natural Gas Regulatory Board (PNGRB) met Assam chief minister Himanta Biswa Sarma highlighted importance of City Gas Distribution (CGD) issues and sought for assistance of State government in promoting natural gas. Chairperson briefed CM about the progress of Oil & Gas Infrastructure in the state of Assam and role that Assam is playing towards realising the Prime Ministers vision for creation of Gas based economy. He highlighted important City Gas Distribution (CGD) issues and sought for assistance of State government in promoting natural gas. Chairperson assured all possible efforts by PNGRB for rapid natural gas infrastructure growth in the State of Assam. He emphasised that rationalisation of Value Added Tax (VAT) on CNG & PNG along with mandates for conversion of public transport to CNG would encourage the use of natural gas in the State. Further, he suggested support from the Government for faster adoption of Domestic PNG connections by providing benefits in line with Pradhan Mantri Ujjwala Yojana. The Chief Minister assured all possible assistance for development of natural gas infrastructure. He believed that accelerated consumption of natural gas will also lead to increase in gas production from the gas fields in Assam which are presently underutilised.
India Could Boost Russian Crude Imports As Prices Fall
As the price of Russia’s flagship crude fell below the $60 per barrel price cap and international benchmarks slumped, India expects to increase its purchases of Russian oil, an anonymous senior government official in India told Reuters on Friday. The price of Russia’s flagship crude, Urals, has dropped below the $60 per barrel price cap for the first time in months amid plunging international benchmarks. The price of Urals crude loaded from Russia’s Baltic Sea port of Primorsk fell to $56.15 a barrel, while the price of Urals at the Novorossiysk port in the Black Sea slumped to $56.55, Bloomberg reported on Thursday citing data from Argus Media. The data is used to inform G-7 policy on the price cap. Urals crude had been trading above the price cap since July, and reports have emerged that the West is considering toughening up the sanction enforcement on evaders of the price cap on Russian oil, almost none of which has recently traded below the ceiling of $60 per barrel. The recent rout in the oil market has driven Urals below the price cap, for now. Last month, the U.S. sanctioned several maritime companies and three vessels for transporting Russian oil above the G7-set price cap. One of the tankers, NS Century, was reportedly headed to India when it was sanctioned. At the end of last month, reports emerged that India was still considering whether to allow the now-sanctioned tanker carrying Russian oil to approach and dock at one of its ports—a sign that the U.S. clampdown on Russian crude trade could limit India’s ability to buy and import cheaper oil. The Indian official refused to comment for Reuters on the likely destination of NS Century, but said that India doesn’t expect the sanctions to impact Indian purchases because of a sufficient number of available tankers on the market.
Two-thirds of LPG sellers hold on to bulk importers to stay afloat in dollar crisis
The liquefied petroleum gas (LPG) sector in Bangladesh is in serious crisis. About Two-thirds of the 30 LPG companies in the country are now struggling with an everyday task that has become extraordinarily difficult, that of opening Letters of Credit (LCs) to import this indispensable cooking fuel which has also become the go-to for industries and automobile. The overwhelming reason is the ongoing dollar crisis, according to the industry insiders. These companies find themselves in a difficult situation. They are being forced to keep their factories churning by tapping into the gas supply from a select few companies. Companies like Omera, Bashundhara, BM, Uni, Jamuna, United are among the few chosen ones, who are importing LPG in large quantities. Now it’s all about managing that elusive working capital and sidestepping potentially colossal losses. It’s a dance with the dollar crisis, and these companies are doing their best to juggle the challenges to keep the machines churning out products. Omera had imported around 15,000 tonnes of LPG a month in the second half of 2022; nowadays, it is importing 25,000 tonnes monthly to meet the increasing demand from the industrial and automobile users. It also supplies the other brands bottlers who are unable to import on their own. On the other hand, after huge investments for infrastructures and holding a strong market position, most others, including Navana, and G-Gas, started to depend on Omera for local procurement. At least 18 companies were importing bulk LPG a year ago, and now, not even half of them are able to manage to open LCs for imports on a regular basis, said Azam J Chowdhury, president of LPG Operators Association of Bangladesh (LOAB). For instance, G-Gas, a concern of engineering conglomerate Energypac, used to import 5,000 tons or more LPG a month. It could not import any for the last three months. “Due to the crisis of the greenback, dollars are nowhere available at the official rate. Banks are asking for even a 130% LC margin against the multimillion dollar LCs,” said Humayun Rashid, managing director and CEO of Energypac. “When an industry is incurring continuous losses, the unforeseen high LC margin is not affordable,” added Rashid who is also the president of the International Business Forum of Bangladesh. To stay afloat in the business of essential commodities and to keep its popular brand afloat, his company, like most others, is locally procuring only a portion of what it used to import, thus losing in the competition. Unlike others, the LPG business cannot pass all their additional costs on to the consumers as they have to sell at the Bangladesh Energy Regulatory Commission (BERC) fixed retail prices. The gap between the official exchange rate and the practical rate at which LCs are settled months later is determining how much loss an LPG importer will incur per cylinder, according to chief financial officers of LPG companies. For instance, the BERC while fixing the LPG retail price of Tk117.02 per Kg for December, considered the weighted average exchange rate of Tk116.39 per dollar, at which companies settled LCs in the previous month while importers are rarely getting the dollar below Tk120. Atiar Rahman, head of finance at Omera Petroleum said, “Every single taka we pay for a dollar in addition to the BERC-recognised exchange rate, is causing a Tk10-12 in loss per 12 Kg cylinder.” Companies are incurring a loss of around Tk80 per cylinder as they have to buy dollars at Tk122 or even more. Just paying more for a dollar alone won’t solve the LC opening problem. The high LC margin is also increasing the financial cost of the already struggling companies that had been financially bleeding for more than a year, said the Chief Financial Officer of another LPG firm that was forced to stop importing a few months ago. “We only know the selling price of our product at the local market but we don’t know how much our purchase cost would be until six months later,” said Mohammad Yasin Arafat, director of Jamuna Gas. The cause of this paradox is that the LCs are settled 6-8 months later. Yasin said the continuous devaluation of Taka against the dollar has created a situation where delay in settling LCs are making the imports more expensive, on a retrospective basis, he added. Azam J Chowdhury said, “We raised our concern in this regard during the last meeting with the energy regulator.” BERC considers only the documented costs of companies while the unofficial and undocumented cost of managing dollars for LCs far exceeds the official rate, said LPG industry CFOs.
‘Not enough,’ International Energy Agency issues grim assessment of COP28 pledges
The International Energy Agency (IEA) on Sunday (Dec 10) released its first detailed assessment of the ongoing COP28 climate talks in Dubai, and it couldn’t be more concerning. The experts concluded that despite the commitments made during the summit by more than 100 nations, the world was still off track to cap global warming to the crucial 1.5-degree threshold. The analysis showed that fresh pledges would lead to reduced gas emissions by four gigatons; however, it was just one-third of what was required. The pledges “would not be nearly enough” to keep global heating to 1.5 degrees, said an IEA statement. The IEA’s Executive Director Fatih Birol was quoted as saying by CNN that enough countries had not joined pledges to wean themselves off fossil fuels. “The IEA’s very latest assessment of these pledges shows that if they are fully implemented by their signatories to date, they would bridge only 30% of the gap to reaching international climate goals,” Birol told CNN. “There is a need for more countries and companies to join the pledges — and for agreement on an orderly and just decline of global fossil fuel use if we want to keep the 1.5 °C goal in reach.” Key pledges Over 120 countries, including the United States, have agreed to triple global renewable energy capacity and double energy efficiency measures. Fifty major oil and gas companies, such as Exxon and Saudi Aramco, have committed to reducing methane emissions by 80 to 90 per cent. Similarly, companies have also pledged to abandon the practice of flaring by 2030. Flaring is the deliberate burning of natural gas during oil extraction. Companies sometimes flare natural gas to depressurise systems during oil drilling, though, at other times, flaring occurs when an operator doesn’t need or want to collect all the gas available, often because it’s cheaper to burn it than collect it. Contention However, negotiations on language related to all fossil fuels, including oil and gas, are proving contentious. While over 100 countries support a fossil fuel phase-out, some oil-producing nations resist any reference to reducing oil and gas.
As petroleum-free future looms, oil companies eye investing in renewables
Petroleum producers are looking for off-ramps to take them off the petrol and diesel highway and turn to renewable sources, both as a survival tactic in a world of petroleum-free transportation and as a gesture to the vociferous climate change chorus. “Oil firms are essentially attempting to figure out how the best presently available cash cow in the world can be replaced for the benefit of their own sustainable future,” Matthias J Pickl, an economics professor at King Fahd University of Petroleum and Minerals in Saudi Arabia, was quoted in NS Energy. Oil majors are “progressively positioning themselves for the proclaimed energy transition” and wind and solar are taking an increasingly important role in the energy industry, he has written according to NS Energy. In India, the Reliance conglomerate with a giant petroleum footprint has announced plans for a New Energy ecosystem making solar, wind, batteries, hydrogen, and bio-energy platforms. Reliance Chairman Mukesh Ambani has committed INR 750 billion for this transformation. Total, the French oil company, announced this year that it will invest USD 300 million in a joint venture with Adani Green Energy in wind and solar farms project. This year, Total says it will be investing USD 5 billion overall in low-carbon energies, which would be higher than its capital investments in oil and gas.
China’s Oil Demand Growth Is Set for a Significant Slowdown in 2024
Crude oil demand in China is set to slow down sharply next year, a survey among 12 industry analysts and consultants carried out by Bloomberg has suggested. According to the results of the survey, oil demand in the world’s biggest importer will decline to 500,000 barrels daily in 2024 as post-pandemic recovery loses steam. This is just a third of the demand growth rate recorded this year. “Next year, growth will be returning to the normal trajectory with pandemic factors fading. The outlook isn’t so encouraging,” Sinopec senior expert Ke Xiaoming told Bloomberg, adding “Petrochemicals are supported by extra capacity, but are facing poor margins.” The survey follows a forecast released earlier this week by CNPC, which projected that oil demand in China will peak by 2030, at a level of between 780 and 800 million metric tons annually. In its forecast, the CNPC Economics and Technology Research Institute also said that by 2030, petrochemicals will account for 30% of oil demand. This still leaves the bulk of demand in the fuels segment. Over the longer term, demand is seen falling to 220 million tons annually, which should happen by 2060. This year, China led the world’s oil demand growth, accounting for 75% of the total additional demand, according to the International Energy Agency. The annual growth rate increase was also impressive, at 10%, per the CNPC’s Economics and Technology Research Institute. However, it is unlikely to be repeated next year. “This year’s oil demand growth at over 10% will never be repeated,” an oil analyst with the ETRI said, as quoted by Bloomberg. According to FGE, 2024 could mark the start of a structural slowdown in Chinese oil demand as EVs reduce demand for fuels. Even with a slowdown, demand for gasoline and diesel will still increase in 2024, by almost 4% for gasoline and 5% for diesel, according to Rystad Energy.
China’s Oil Demand Growth Is Set for a Significant Slowdown in 2024
Crude oil demand in China is set to slow down sharply next year, a survey among 12 industry analysts and consultants carried out by Bloomberg has suggested. According to the results of the survey, oil demand in the world’s biggest importer will decline to 500,000 barrels daily in 2024 as post-pandemic recovery loses steam. This is just a third of the demand growth rate recorded this year. “Next year, growth will be returning to the normal trajectory with pandemic factors fading. The outlook isn’t so encouraging,” Sinopec senior expert Ke Xiaoming told Bloomberg, adding “Petrochemicals are supported by extra capacity, but are facing poor margins.” The survey follows a forecast released earlier this week by CNPC, which projected that oil demand in China will peak by 2030, at a level of between 780 and 800 million metric tons annually. In its forecast, the CNPC Economics and Technology Research Institute also said that by 2030, petrochemicals will account for 30% of oil demand. This still leaves the bulk of demand in the fuels segment. Over the longer term, demand is seen falling to 220 million tons annually, which should happen by 2060. This year, China led the world’s oil demand growth, accounting for 75% of the total additional demand, according to the International Energy Agency. The annual growth rate increase was also impressive, at 10%, per the CNPC’s Economics and Technology Research Institute. However, it is unlikely to be repeated next year. “This year’s oil demand growth at over 10% will never be repeated,” an oil analyst with the ETRI said, as quoted by Bloomberg. According to FGE, 2024 could mark the start of a structural slowdown in Chinese oil demand as EVs reduce demand for fuels. Even with a slowdown, demand for gasoline and diesel will still increase in 2024, by almost 4% for gasoline and 5% for diesel, according to Rystad Energy.
Can OPEC+ Boost Oil Prices Next Year?
OPEC+ disappointed the oil bulls last week by announcing voluntary cuts from several producers and failing to agree on a group-wide supply reduction, at least for the first quarter of 2024, when demand is typically at its lowest. The alliance and its most prominent members, Saudi Arabia and Russia, rushed to calm the market – where oil prices were already sliding following the underwhelming meeting last week – that OPEC+ could intervene again and extend or deepen the cuts should supply and demand balances warrant it. The OPEC+ cuts were already baked in the price of oil, and a week after the alliance’s meeting, prices hit a six-month low on Wednesday amid swelling U.S. inventories, concerns about the Chinese economy, and fears of weakening global oil demand growth. OPEC+ has to contend with all those bearish signals and with a market currently focused on demand instead of on supply. What’s Next from OPEC+ Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, told Bloomberg on Monday that the OPEC+ production cuts could extend beyond March 2024 if the market requires it. The Saudi energy minister also criticized commentators for failing to understand the output deal and suggested that this would change once “people see the reality of the deal.” “I honestly believe that the 2.2 million will overcome the usual inventory build that usually happens in the first quarter,” Prince Abdulaziz bin Salman told Bloomberg, referring to the overall OPEC+ cuts for the first quarter of 2024, which include Saudi Arabia rolling over its voluntary cut of 1 million barrels per day (bpd). Prince Abdulaziz bin Salman’s remarks were echoed by Russia’s top oilman, Deputy Prime Minister Alexander Novak, who said on Tuesday that the OPEC+ group is ready to take additional measures and deepen the oil production cuts to avoid volatility and speculation on the market. Since “stability” is the preferred OPEC+ word for supporting oil prices, the alliance could attempt to intervene again if prices slide further and demand disappoints. But as last week’s meeting showed, disagreements within OPEC+ run deep, and a unanimous decision could be even more difficult to reach next year. OPEC+ Key to Oil Prices At any rate, the oil market management from OPEC+ would be key to where prices will go next year, Warren Patterson, Head of Commodities strategy at ING, wrote in a note earlier this week. “The outlook for the oil market largely depends on OPEC+ policy,” Patterson said. The cuts announced last week would be enough to erase the previously expected surplus on the market for the first quarter of 2024, according to the bank. “However, our balance still shows a small surplus in 2Q24, which means that the market is largely balanced over 1H24. This could and will likely change depending on how OPEC+ members go about unwinding these voluntary cuts,” Patterson said. ING sees Brent Crude trading in the low $80s early next year, while it forecasts Brent to average $91 per barrel over the second quarter of 2024 when the market will return to deficit. But OPEC+ Faces Many Variables in Controlling Prices A week after the OPEC+ meeting and the latest announcements of production cuts, oil prices have lost around 10% as the market was expecting a larger supply reduction and had already priced in some sort of cuts. Concerns about the Chinese economy, soaring U.S. crude oil production, and rising U.S. commercial inventories and crude exports have all weighed on prices. WTI slipped on Wednesday below the $70 a barrel threshold for the first time since July, and Brent slipped to below $75 per barrel—for the lowest settlement since June. OPEC+ now faces the same old dilemma – how to counter surging U.S. production and prevent it from unraveling the efforts of the alliance to prop up prices. Non-OPEC+ supply is growing at a faster pace than previously forecast and is being 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. Record-high U.S. oil production is a “huge problem” for OPEC+, Paul Sankey at Sankey Research told CNBC after last week’s OPEC+ meeting. U.S. crude oil production hit a new monthly record of 13.236 million bpd in September, according to the latest data from the EIA released last week. Demand is also seen currently as a bearish factor for oil prices, especially demand early next year. Concerns about the world’s two largest economies dominate market sentiment. Just this week, credit rating agency Moody’s changed the outlook to negative from stable on China’s government credit ratings, expecting higher financial support needed to prop up the economy to weigh on government finances. “The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector,” Moody’s said, explaining the negative outlook, which is a warning for a credit rating downgrade. The degree to which the U.S. and its allies will be willing to toughen up the enforcement of the sanctions on the oil exports of Russia and Iran next year will also affect oil prices. OPEC+ will have to factor in many variables in its market-managing policies next year, including a fresh threat to its market share from soaring U.S. and non-OPEC+ production.