Oil May Be About To Go Down On Higher Costs
Analysts have been talking about three-digit oil prices for months now, yet the benchmarks have stubbornly refused to move above $100, whatever happens. One reason for this is the economic headwinds pressuring prices and keeping them from breaking out above $100. The other: costs related to moving oil around have soared, souring demand. Bloomberg reported earlier this month that freight rates on 16 global maritime routes had gone up by 50% since the Hamas attack on Israel. The data came from the Baltic Exchange and concerned the period between October 9 and October 15. “Shipping historically has benefited from geopolitical turmoil,” John Kartsonas, managing partner at Breakwave Advisors, a shipping-related ETF manager, told Bloomberg. “The urge to secure energy supplies is the first thing in mind of traders when wars or conflicts begin.” This week, Reuters reported similar data, this time from LSEG, and the report also noted signs of weakness in the physical oil market, suggesting these were about to spill into the futures market, pushing benchmark prices down. “Globally, demand is tracking sideways from here, and we’re going to see increases in crude supply from non-OPEC. Come January, the market could start looking a bit longer,” the report quotes FGE analyst James Davis as saying. This is all but a certainty because we are definitely not going to see more supply from OPEC. Saudi Arabia and Russia have signaled they were ready to extend their cuts for as long as necessary to get the prices they want, and some other OPEC members are seeing fewer loadings because of the freight rate problem. Per the Reuters report, which also cited traders, loadings of crude from Nigeria and Angola have slowed down lately because of the changes in freight rates. As a result, the premium of physical oil prices to benchmarks have already shed between $1 and $2 per barrel. There is also the issue of lower refining margins. For months, refiners have enjoyed strong margins on strong demand and not too high crude prices. Now, things have started to change as driving season in the U.S. draws to a close, implying lower demand for gasoline and as crude-to-product spreads have declined. A Bloomberg news outlet reported last week that the Singapore gross refining margin had slumped by 50% since the start of the fourth quarter, reaching $4.80 per barrel at October 15, per Reuters data. For context, the average margin over the second quarter of the year stood at $9.60 per barrel. All these are signs that weaker prices may be coming because of weaker physical trade. Indeed, benchmarks are already down after the initial surge following the breakout of violence in Israel and Gaza, as expectations for a quick resolution increase amidst diplomatic efforts to put an end to the conflict before it spreads. But it is the physical market that matters, and there the signals seem to be even stronger. Per the Reuters report, there are between 20 and 30 cargoes of Nigerian crude sitting unsold, along with six or seven cargoes of Angolan crude. Typically, at this time of the year, the amount of unsold cargoes is much lower, Reuters noted in the report. Meanwhile, margins are falling in the United States, too, which seems to be already affecting refiners’ production decisions. And that’s despite robust exports of crude and fuels this summer. Some have suggested this is the result of more EVs displacing demand for gasoline. Yet EV sales are still a fraction of total U.S. car sales, so this may be a premature conclusion to make. Instead, it is more likely that refiners are raising their distillate production rates: middle distillates are in a much tighter supply globally, but especially in the United States. And they are reducing run rates because of those falling margins. Those three-digit oil prices may yet be far away.
Punjab signs pact with HPCL
Punjab Energy Development Agency (PEDA) on Friday signed a memorandum of understanding (MoU) with Hindustan Petroleum Corporation Ltd (HPCL) for setting up ten compressed biogas (CBG) projects and other new and renewable energy projects in the state. The pact was signed by Chief Executive Officer, PEDA, Amarpal Singh and Executive Director, HPCL, Shuvendu Gupta here in the presence of Ravi Bhagat, Secretary, New and Renewable Energy Sources, Punjab. Gupta said HPCL would initially set up ten CBG projects with an investment of about Rs 6 billion. It will also explore possibilities of establishing other renewable projects. These ten plants are expected to produce over 35,000 tonnes of CBG and about 8,700 tonnes of organic manure annually, besides generating revenue of around Rs 3 billion annually from CBG production. The projects will also generate direct employment opportunities for more than 600 people and about 1,500 indirect jobs. Amarpal Singh said with the implementation of these ten projects, at least 2,75,000 tonnes of paddy straw will be prevented from being burnt in about 1,10,000. This will prevent creation of CO2 emissions and other pollutants to the tune of 5,00,000 tonnes annually, which is equivalent to planting 83,000 trees each year. The projects will also create around 50 rural entrepreneurs for supply of paddy straw to these plants, further creating employment for more than 500 people. Inviting other CBG developers for investment in the state, Punjab New and Renewable Energy Sources Minister, Aman Arora, said the government’s business-friendly and transparent policies have created the most conducive environment for industrial growth. He emphasised that Punjab is an agrarian state and has an immense potential for crop residue-based CBG projects.
As a rising India becomes the ‘launderer’ of Russian oil, doubts over Western security ties grow
Sitting at the top of a business empire that spans fossil fuels, telecoms and retail, he is India’s – in fact, Asia’s – richest person. Like India’s ascendant Prime Minister Narendra Modi, he hails from the western state of Gujarat, and is one of the country’s most visible and powerful tycoons. Among his international targets is Australia, where he is aiming to develop energy projects worth billions of dollars in the coming years. His name, contrary to what most Australians with a passing interest in sub continental business and politics might think, is not Gautam Adani, the moustachioed head of his eponymous company. It is Mukesh Ambani. The 66-year-old, whose Reliance Industries is India’s largest company by market capitalisation, has a personal fortune estimated by Bloomberg at $US84 billion ($132 billion). Few businesses have been more important to the amassing of that wealth than Reliance’s oil refineries. Those refineries are now at the centre of an international game of intrigue being played at the highest levels between the West on one side and its substantial band of critics on the other. How it came to be, and how it evolves, could well have significant implications not only for the wealth of people such as Mr Ambani, but for Australia’s very own security ties. Desperate seller, willing buyer At the heart of the game is the oil trade between Russia and India, for so long a mere footnote in the trading accounts of the world’s energy users. Whereas India historically bought negligible amounts of Russian oil, that all changed in February last year when Vladimir Putin made the fateful decision to invade neighbouring Ukraine. It was an act of naked aggression that shocked the world. It was also a decision that tipped the world’s energy markets on their heads and prompted Moscow’s biggest energy customer – Europe – to try to wean itself off Russian supplies by the end of that year. Virtually overnight, India went from buying a few thousand barrels of Russian oil a day to more than a million. In September, India bought more than 1.5 million barrels of Russian oil, or roughly 20 per cent of its exports Ian Hall, an international political scholar at Griffith University, said there was little doubt the burgeoning oil trade between Russia and India was one of convenience for both sides. He said Russia was getting a willing buyer for exports that had been shut out of western markets, while India was able to hoover up big amounts of energy for its growing economy. But Professor Hall said there were deeper things than opportunism that underpinned the relationship between the two giant countries. He said Russia had been one of the few powers to show sympathy to India when it emerged, weak, from British colonial rule in the mid-20th century. Russia, he said, supplied India with cheap loans, agricultural goods and, crucially, defence gear. Shared ‘anti-Western’ history Professor Hall said just as importantly, Russia backed Delhi at a time when the US was helping to support – and arm – India’s great rival Pakistan “as a bulwark against Communism in South Asia”.
Govt achieves 12% ethanol blending target for ESY 2022–23: Oil Minister
India has achieved the target of blending 12 per cent ethanol with petrol during the current ethanol supply year, which concludes in October 2023, Oil Minister HS Puri said on Thursday In ESY 2022–23 (December 2022–October 2023), the government had set a target of achieving 12 per cent ethanol blending with petrol. The target for next year—ESY 2023–24 (November 2023–October 2024)—is 15 per cent. “(Oil) Secretary Pankaj Jain told me that we have already done 12 per cent this month, which was our target, and we are well towards reaching our target of 20 per cent biofuel blending by the calendar year 2025,” Puri said while launching reference fuels produced by State-run refining and marketing behemoth Indian Oil Corporation (IOC). Several advancements, such as the expedited implementation of fuel blending, moving the ambitious target of achieving 20 per cent blending from 2030 to 2025, and the sale of E20 blended fuel at over 5,000 petrol retail outlets, are a significant step in reducing emissions, he added. The Minister noted that, apart from interest in producing ethanol from sugar-based producers, the maize industry is equally keen. “I think the rate of use of maize is so high that it is impressive. Today, meeting blending targets for biofuels is not an anxiety point. By the end of the 2025 calendar year, 20 per cent blending will be easily done,” he noted. Ethanol blending The percentage of ethanol blended with petrol by the oil marketing companies (OMCs) had declined to 11.72 per cent in August this year from 11.77 per cent in July on account of a lack of availability of feedstock such as rice. The Ministry of Petroleum and Natural Gas (MoPNG) attributed the decline in blending to the discontinuation of Food Corporation of India (FCI) rice from July 2023.
India can reduce fossil fuel dependence, cut import bills by $29 bn through biogas adoption: Report
Replacing natural gas consumption with biogas and biomethane incrementally to 20 per cent by 2030 can help India cut liquefied natural gas import bills by USD 29 billion between financial years 2025 and 2030, according to a new report. The report from the Institute for Energy Economics and Financial Analysis (IEEFA), underscores the environmental advantages of expanding biogas projects, including waste management, reduction of greenhouse gas (GHG) emissions, and enhanced renewable energy production. According to the report’s author Purva Jain, an energy analyst at IEEFA, “Biogas has the potential to replace natural gas and other high-emission fossil fuels. By eliminating carbon dioxide (CO2) and impurities like hydrogen sulfide, its methane content can be upgraded to 90 per cent, making it calorifically equivalent to natural gas. This upgraded biogas, known as biomethane, is pipeline-ready and can be integrated into gas grids as a non-fossil gas, she said. “By adopting appropriate production methods and addressing methane leaks during production, upgrading, and supply stages, biogas can offer India a cleaner alternative to its reliance on imported natural gas,” Jain said. Despite its clear advantages, the biogas sector has struggled to gain traction in India. The report identifies several reasons for this, including the absence of a comprehensive market ecosystem, pricing challenges, complex approval processes, and fragmented government support. Jain said the government has begun to address these issues. In 2021, various types of support were consolidated under the National Bioenergy Scheme. “Moreover, the introduction of the GOBARdhan (Galvanizing Organic Bio-Agro Resources Dhan) scheme as an umbrella initiative of the government will help in this consolidation. It covers the entire gamut of schemes/policies promoting organic waste conversion to biogas or compressed biogas (CBG),” she says. The report also highlights recent policy developments, such as revising the compressed biogas rate in response to global gas price increases and plans to mandate natural gas marketing companies to procure five per cent compressed biogas. These measures have reignited private sector interest in compressed biogas, with companies like Reliance Industries Limited and the Adani Group showing strong enthusiasm. However, the report emphasises that the government must do more to fully unlock biogas’s potential in India. This includes encouraging increased investments and private sector involvement, improving market viability for CBG and biogas slurry, increasing financial access for biogas plant development, and promoting feedstock mapping for input availability. Additionally, it is crucial to ensure that energy crops are not used for biogas, as this can lead to indirect land use changes, as seen with ethanol and biodiesel in Brazil, which can have a detrimental impact on climate and the environment through increased carbon emissions. “A key step will be to guarantee the offtake of CBG by various natural gas-using industries to expedite the achievement of decarbonization goals. The introduction of take-or-pay arrangements will be a significant move in this direction,” Jain said.
Linde (LIN) to Supply Industrial Gases to Indian Oil’s Panipat Refinery
Linde announced today that its entities in India have signed long-term agreements for the supply of industrial gases to Indian Oil Corporation’s Panipat refinery in Northern India. Linde’s entities will build, own and operate major new on-site facilities to supply hydrogen, nitrogen and compressed dry air to Indian Oil. The new on-site facilities will support the multi-billion-dollar expansion of the Panipat refinery from 15 to 25 million metric tons per year. Industrial gases play several important roles in refining, whether removing sulfur to make clean fuels, cracking crude oil into various products or purging and cleaning process equipment and control instruments. Panipat will be the second large-scale hydrogen plant which is built, owned and operated by Linde entities for Indian Oil. It will also be one of Linde’s largest on-site plants in India, with a total combined industrial gas production capacity of 142,200 cubic metres (Nm 3 ) per hour. The plant is expected to start up in 2025.
OPEC’s Share Of India’s Oil Imports Hits Record Low
OPEC had a record-low share of India’s oil imports between April and September, as the world’s third-largest crude importer more than doubled purchases of Russian crude, according to industry and trade data compiled by Reuters. Between April and September, the first half of India’s 2023/2024 fiscal year, Indian imports of Russian crude oil more than doubled to 1.76 million barrels per day (bpd) from 780,000 bpd in the same period of the 2022/2023 year, per vessel-tracking data cited by Reuters. India buys from abroad more than 80% of the crude oil it consumes. Over the past year and a half, the country has significantly raised its imports of cheaper Russian crude oil, which is banned in the West. In the first half of 2023/2024, Russia held a 40% share of Indian crude oil imports, while the share of OPEC exporters slumped to a record low of 46%, according to a Reuters analysis of data going back to 2001/2002. In the April-September period of 2022, OPEC’s share of Indian oil imports was 63%. Indian refiners have significantly ramped up imports from Russia while reducing purchases from Saudi Arabia, the world’s top crude oil exporter and Russia’s key partner in the OPEC+ pact. After lower imports of Russian crude in July and August compared to the prior months, India’s imports of oil from Russia rebounded in September. Cheaper Russian crude compared to Middle Eastern alternatives prompted Indian refiners to import more crude from Russia last month compared to a seven-month low in August. India’s crude oil imports from Russia rebounded amid a tighter market and more expensive crude from the Middle East, including from Saudi Arabia, which has been raising its contractual selling prices for Asia. According to the tanker-tracking data compiled by Reuters, Indian imports of Russian crude rose in September by 11.8% from August and jumped by 71.7% compared to September 2022, to an average of 1.54 million bpd.
IGX hopes to launch contracts for LNG trading next month: CEO Mediratta
The Indian Gas Exchange (IGX) hopes to launch contracts for the trading of liquefied natural gas (LNG) next month, enabling companies not linked to the pipeline network to use the cleaner fuel, its chief executive said on Thursday. India is building a vast gas pipeline network and import facilities as Prime Minister Narendra Modi wants to raise the share of gas in the country’s energy mix to 15% by 2030 from about 6% currently. “The LNG contracts will help the small industries with regassification facilities to transport LNG in trucks from the (import) terminals,” Rajesh K Mediratta told reporters at an industry event. He said IGX hopes to have daily volumes of 0.5 million-1 million cubic metres of gas under the new contracts. IGX is also seeking regulatory approvals to launch long-term gas contracts with a duration ranging from three months to one year. The pricing of gas under the long-term contracts will be linked to a formula, he said. “There are industries such as glass, ceramic, fertilisers, and refineries that want long-term contracts,” he said, adding the long-term contracts could be launched by December-January. At present, IGX has daily, weekly, fortnightly, and monthly gas contracts.
Traders Dumped Oil Despite Middle East Tensions
Institutional traders are dropping their oil positions as the outlook for the commodity—and the global economy—becomes marred in even more uncertainty. There has also probably been some profit-taking among hedge funds and other large oil futures market players after oil prices surged above $90 following the latest OPEC meeting earlier this month. The profit-taking started soon after the meeting, but the pace of exiting oil positions has accelerated recently. Reuters’ market analyst and columnist John Kemp reports that last week, traders quit oil and fuels at one of the fastest rates for the past decade, reducing their exposure by a total of 140 million barrels. For context, the last three weeks have seen institutional traders sell a total of 197 million barrels after building positions equaling 398 million barrels over the previous 12 weeks. Concern about the immediate future of the global economy is certainly one reason for this. The International Monetary Fund said this week higher energy prices would contribute to inflation, stoking the fears. According to the lender, a 10% increase in the price of oil would add 0.4% to inflation, aggravating an already unstable situation in many parts of the world. “Debt levels are at record levels and at the same time we are in this higher-for-longer interest [rate] environment. There is a lot . . . that could go wrong,” Gita Gopinath, deputy head of the IMF said, as quoted by the FT. Indeed, speaking of debt, the Wall Street Journal recently reported that for the first time in history, there is uncertainty about the placement of the latest issue of U.S. sovereign debt. There has been a significantly higher than usual supply of Treasury bonds this year, sending U.S. debt to a record, but there are indications that demand may not correspond to that higher demand. There is also the geopolitical factor, as well. With a new war in the Middle East, it appears the biggest question is whether Iran and the United States will become involved in it more directly. Should this happen, there appear to be unanimous expectations of an oil price surge. That price surge, however, would hit economies, and it would hit them hard, which could mean traders are being pre-emptive, especially since they are not switching from bullish to bearish positions, meaning they do not expect prices to slump anytime soon. Meanwhile, in some positive news for a change, the media reported that the U.S and Venezuela may be on the way to reaching a deal that would make the U.S. lift sanctions on Caracas. The news sent oil prices 1% lower. The situation is perhaps more interesting in gas markets. Reuters’ Kemp noted that while institutional traders sold oil, they bought U.S. gas last week. They may continue to do so as global gas supply disruption risk runs high. First, it was the war between Israel and Hamas that pushed gas prices higher, especially after the Israeli government told Chevron to shut down production at the Tamar offshore field for safety reasons. Gas from Tamar flowed to Egypt, where it was liquefied and exported, including to Europe. Then, reports began coming in that workers at Chevron’s two Australian LNG projects are once again planning to strike, which immediately sent European gas prices higher. However, Europe does not import LNG directly from Australia, with one exception last year; any danger of supply disruption in a market as tight as LNG is bound to affect prices in one of the biggest importers. This extra volatility of prices will likely persist over the next few months, with Europe increasingly leaning on U.S. LNG rather than other gas suppliers such as Azerbaijan and Qatar due to certain controversy over the former’s actions in the Nagorni Karabakh region and the latter’s long-standing financial support of Hamas.
Israel-Hamas conflict: India’s hope of respite in oil prices dashed
Since Hamas’ invasion of southern Israel on October 7, petroleum has become costlier by around $5 per barrel, threatening to stoke prices and impact growth Brent crude was trading at $89.8 per barrel on October 9 (9.15 pm IST), up over 4 per cent, thwarting India’s anticipation of a period of declining oil prices — after the leading global petroleum benchmark declined by around 11 per cent last week. The price of Brent crude had collapsed by around $12 per barrel — from $96.6 a barrel on September 27 to $84.6 on October 6, a day before the Hamas attack. “Oil prices have gone up a bit because the markets are very anxious, but there is no panic–I mean, not yet,” said Narendra Taneja, a Delhi-based prominent energy expert. “However, if it escalates into a full-blown war in the region, then there will be panic, pushing up oil prices,” further. The surge in oil prices is the risk premium in the market. The region where the conflict is occurring is the centre of global energy, said India’s oil minister Hardeep Singh Puri on Monday. He expressed confidence that the country would navigate through this. However, that won’t be easy because India imports over 85 per cent of its crude needs and has traditionally been susceptible to volatility in the oil market. Strategic crude reserves, which typically aid a nation during wars and calamities, at 39 million barrels provide for only around 7.5 days of India’s crude oil requirement, according to government data. The growing conflict in West Asia threatens to further impact India’s fiscal and balance of payments position, which was already suffering from surging oil prices since August, and hinder New Delhi’s efforts to control inflation. The Indian crude oil basket, a mix of Gulf sour and Brent sweet grades, averaged $93.54 a barrel last month. “While an immediate risk to oil flow as a direct result from the conflict is not foreseen but there is a risk that the conflict may turn into a larger proxy war involving larger global powers which can have a spiraling effect,” said Sourav Mitra, practice leader and director, at ratings agency Crisil. “As far as India is concerned, an increase of $10 per barrel in oil prices can lead to a 45 to 60 basis point increase in CPI.” While the loss sharing between OMCs and the government is slightly opaque, one can expect a 10 percent oil price rise to negatively impact India’s growth by 0.09% to 0.11%, Mitra added. At 4.2 million barrels a day in imports of crude in September, according to market intelligence agency Kpler data, it looked like India would have saved $50 million every day, and around $1.5 billion a month if Brent had continued to remain low in October. But as of October 9, India will pay around $17 million more every day, and half a billion dollars more on crude imports for the month. India’s rising import costs are conservative, based on the assumption that the conflict deflates quickly and Brent crude stabilises. However, ANZ Bank warned in a client note that oil prices will be supported by increasing geopolitical risk in West Asia and will be accompanied by higher volatility. Earnings at refiners are already looking weak for the July-September quarter, but a crash in oil prices earlier this month gave hope to state-run oil companies that they can make up for lower profits in last quarter by performing better during this quarter (Q3FY24), said a Mumbai-based refiner. Given the Assembly polls in five states in November and the Lok Sabha election in 2024, the official expects negative marketing margins to continue this financial year because New Delhi will veto any proposed hike in pump prices of petrol and diesel. “We expect OMC (oil marketing company) results to be operationally weaker for July-September, owing to a sharp fall in marketing gains of petrol and diesel due to the rise in benchmark prices,” said Mumbai-based brokerage Prabhudas Lilladher in a note today. State OMCs likely have incurred a marketing loss of Rs2-6 a litre at a gross level during July-September 2023 due to high diesel crack spreads in the international market, said Paras Pal, senior analyst at India Ratings & Research. Israeli Prime Minister Benjamin Netanyahu and his Cabinet have declared a war on Hamas, and launched airstrikes in Gaza. It is unclear how far this battle will continue, especially considering that what one expected was a short war between Russia and Ukraine has soldiered on for 19 months. The US is trying to broker a peace agreement between Saudi Arabia and Israel, undermining a deal reached earlier this year between Saudi Arabia and Iran brokered by China. Saudi Arabia had agreed to increase oil output next year if the Israel deal came through, analysts said. The attack by Hamas is an effort to scupper or at least paralyse the Saudi-Israeli deal, Taneja added.