India To Lead Global Oil Demand Growth As Population, Economy Booms: OPEC
India is going to lead the growth in global oil demand over the period from 2022 to 2045, as a rising working age population, high economic growth, an expanding middle class and rapid urbanisation drive up thirst for the fossil fuel. The country will add 6.6 million barrels per day to oil demand over the forecast period, the Organization of the Petroleum Exporting Countries said in its latest World Oil Outlook. According to the forecast, by 2045, the country’s oil demand will hit 11.7 million barrels per day. This means a 3.6% growth per annum over the next 23 years—the highest among OECD and non-OECD regions. India’s current oil consumption stands at 5.1 million barrels per day, for which it relies on imports to meet 85% of the demand. It is the world’s third largest consumer of oil, behind the U.S. and China. “With an average GDP growth of 6.1% p.a. over the projection period, India is set to remain the fastest-growing major developing country. China and India alone are set to account for more than a third of the global economy in 2045,” the report said. While the Organisation for Economic Co-operation and Development region will see a 1.1% fall in demand and thereby a reduced share of oil in its energy mix, the non-OECD region is forecasted to have a 1.7% growth rate. The fall in share of oil demand in OECD countries can be attributed to a massive push to decarbonise the energy mix in the developed world. At the same time, energy hungry developing countries will continue to burn fossil fuels to run their growth engines even as they invest in cleaner sources of energy. India will add 6.6 million barrels per day to oil demand over the forecast period. The global working age population (aged between 15–64) is set to increase globally by 826 million over the forecasted period, of which India’s share will stand at 156 million. India’s urbanisation rate is expected to be 50% by 2045 from 36% in 2022.
India wants Saudi Aramco to develop strategic petroleum reserve as ties strengthen
India wants Saudi Arabia’s Aramco to participate in its planned 6.5 million metric tons (MMT) strategic petroleum reserve (SPR) programme as the South Asian nation wants to strengthen ties with its key oil supplier, according to a document seen by Reuters. The two nations have been talking about Aramco’s participation in the SPR programme for years. The talks, however, gained traction after Crown Prince Mohammed Bin Salman’s meeting with Prime Minister Narendra Modi last month. “Under Phase II Strategic Petroleum Reserves Programme construction of two new commercial-cum-strategic petroleum reserves of 6.5 MMT have been approved,” the Indian government said in an internal document, adding that “Saudi Arabia’s Aramco can be invited to participate in the Phase II.” Aramco declined to comment, while the Saudi government did not respond to emails seeking comment. India’s prime ministers office, oil ministry and finance ministry did not respond either. In 2021, India overhauled its SPR policy allowing commercial sale of the crude to boost private participation in the building of new storage facilities, mirroring a model adopted by countries such as Japan and South Korea. India, the world’s third-biggest oil importer and consumer, imports over 80% of its oil needs and has built strategic storage at three locations in southern India to store over 5 million tons of oil to protect against supply disruption. Abu Dhabi National Oil Co (ADNOC) has leased 750,000 tons of oil storage in the 1.5 million ton SPR in the southern city of Mangaluru. India has conducted two road shows for the second phase of its SPR programme that received interest from companies including Trafigura, British Petroleum, Petrochina, Hyundai, Gulf Energy, Glencore and Shell, a government statement said. Regarding a potential deal between India and Saudi Aramco, KPMG Partner Anish De commented: “Getting the investment there will align the economic and political interest. There is good economic and political reasons for the two countries to do it.” During the visit by the crown prince to India, Saudi Arabia announced plans for an investment facilitation office in India’s Gujarat International Finance Tec-City, a tax-neutral financial service centre. India is also scouting for land to build a 1.2 million metric tonnes per year refinery and petrochemical project in western India with participation of Saudi Aramco and ADNOC. The two governments will form a task force to remove hurdles like land acquisition, which has delayed the project, which was conceived in 2018. Saudi Arabia has committed $50 billion investment for the project.
India’s Sept diesel flows to Europe reach all-time peak, Oct volumes slowing
India’s September-loading diesel exports to Europe hit an unprecedented high as traders cashed in on arbitrage profits to the West, although the likelihood of such volumes continuing through October was unlikely, traders and analysts said. Exports also got a boost from a seasonal lull in domestic demand, an India-based trading source said. “This trade flow was mainly attributed to the opened arbitrage for India-origin cargoes to head West, with traders potentially preparing for the loss of Russian diesel barrels to Turkey as well due to the export ban,” said Vortexa’s head of APAC analysis, Serena Huang. Russia banned diesel exports on Sept. 21 to stabilise domestic market fundamentals, though this was partially lifted from Oct. 6. The surge in India-origin diesel to Europe will help the continent build commercial stockpiles ahead of the winter heating season, easing supply shortage worries and limiting overall price gains. The westward pull for cargoes, in turn, will support Asian refining cracks, or margins, mitigating a modest supply glut in the region. Exports from India to Europe totalled between 280,000 barrels and 303,000 barrels per day (bpd) in September, accounting for half of India’s total diesel exports for the month, shiptracking data from Vortexa, Kpler and LSEG showed. Exports to Singapore, by contrast, fell by around 73% month-on-month in September, as it was more profitable for sellers to ship cargoes west. The east-west arbitrage, typically measured using the exchange of futures for swaps (EFS) price differential – a spread between ICE gasoil futures and Asia’s prompt month gasoil swaps – averaged $76 a ton daily in the second half of September, LSEG data showed. A drop in India’s windfall export tax during much of September also encouraged refiners to sell their cargoes outside home, one Singapore-based trading source said. This is in addition to the rising cash premiums for India-origin exports, with deals for September cargoes at premiums of around $4 a barrel compared with August premiums at $2 to $3, a second Singapore-based trading source added. “However, the arbitrage spreads have narrowed in the past week, so the flows will slow in October,” Vortexa’s Huang said. The EFS spreads have narrowed by almost $20 a ton from a week earlier, LSEG data showed. October volumes bound for Europe from India thus far are around a quarter of September levels at 75,000 barrels per day, Kpler shiptracking data showed. Exports from India for October are likely to remain thin due to several factors including ongoing refinery turnarounds and peak Diwali festive season demand, LSEG analysts said. At least three Indian refiners plan to take their crude units and some corresponding downstream units offline in the fourth quarter of the year for maintenance, Reuters records showed.
Biofuels alliance to propel global market to $200 billion: Hardeep Singh Puri
Union minister for petroleum and natural gas Hardeep Singh Puri said the global biofuel market is set to jump from its current value of $92 billion to $200 billion, with the launch of the biofuels alliance. Speaking at the inaugural session of the 26th Energy Technology Meet here on Monday, Puri emphasized, “However, this is not the end of the story. The real story on biofuels has just started.” Puri’s address was a testament to India’s swift progress in adopting green and clean energy. “The nation achieved its 10 percent biofuel blending target for November 2022, five months in advance. The subsequent goal of 20 percent blending for 2030 has been preponed to 2025,” he added. Navigating the triad of challenges in energy – availability, affordability, and sustainability – Puri remarked, “We didn’t allow our sustainability challenge to hold us back. In fact, we’re constantly accelerating our efforts.” He further highlighted the nation’s proactive measures in adapting to newer blends. “Initially, the 20 percent blend was a self-imposed cap, influenced by automobile manufacturers’ concerns. However, with the current availability of 20 percent blended fuel and rigorous establishment of biogas and ethanol plants, we’re witnessing a paradigm shift,” he said. Citing the recently launched Green Hydrogen Bus by India Oil, the minister accentuated, “Our technological mindset is evolving. We’re not just limited to electric cars; flexi-fuel vehicles are the next frontier.”
OPEC+ Stands Firm As Global Oil Demand Teeters
Last week, OPEC+ decided to keep current oil production cuts in effect until the end of the year. The announcement was anything but surprising, and yet crude oil prices fell substantially, sparking suggestions that the OPEC+ cuts may already be activating what many call the cure for high oil prices, which is even higher prices. But there is a possibility that oil has higher to go still before it begins affecting demand. The question, as always, is just how high. The answer: perhaps a bit higher. India’s oil minister this week warned about unintended consequences from the OPEC+ cuts, saying it was the right of the OPEC+ producers to decide how much oil they would pump, but they should not be “unmindful of the consequences.” “And it can become a self-fulfilling prophecy, that the demand will drop because people don’t have the capacity to sustain it,” Hardeep Singh Puri added. According to Bloomberg’s Julian Lee, demand destruction is already underway. In the United States, gasoline consumption this driving season was 600,000 bpd below the average for 2019, the last pre-pandemic year with what is assumed to be normal demand. In addition, the latest EIA inventory report showed a substantial build in gasoline inventories, reinforcing a perception of lukewarm demand for fuels. Unsurprisingly, that build was one of the factors that weighed on prices this week. Yet while demand may weaken in the U.S., it is rising in other parts of the world. China, India, and Brazil, Lee notes, are all witnessing rising oil demand. Only, according to him, this growth needs to be stronger to offset the declines in demand elsewhere. This, however, would depend on the causes of demand destruction. And when we talk about U.S. demand, it was not prices that destroyed demand—oil was well below $90 per barrel during summer driving season. It could have been inflation, which remains elevated despite consistently high consumer spending. It could have been just one of those years. Meanwhile, oil demand in China is “booming”. “China’s demand for oil has been supported by record internal mobility, as indicated by robust congestion and domestic flight data,” Goldman Sachs commodity analysts recently said, noting the country’s booming demand for copper, driven by the low-carbon energy industries. India’s oil demand is also quite robust, despite the government’s concerns about prices, prompted by the fact that the country relies on imports for over 80% of its oil consumption. Despite his warnings about prices, India’s oil minister this week said the country “will manage” even if oil tops $100 per barrel. This seems to be where most observers see oil heading anyway. The latest to join the $100-per-barrel club was Norway’s Equinor, whose chief economist predicted that “I wouldn’t exclude that we can have prices reaching $100 a barrel,” but added that “that wouldn’t be because OPEC would like it to reach there. I don’t think they are aiming for that price.” Indeed, Eirik Waerness made an excellent point that others have made in recent days, too. OPEC+ as a whole or Saudi Arabia and Russia are not interested in watching oil prices soar sky-high. They are aware of the nature of the cure for high oil prices. So, as before, what they are doing is a fine balancing act that can keep prices high enough for producers but without killing demand, at least not too much of it. This is the key issue at stake: can the global economy keep chugging along even as oil rises close to $100 or even above it, or will there be a fallout that would, ultimately, destroy a lot more demand for oil? For now, it seems the economy keeps chugging along, accompanied by persistent concerns about interest rates, recession, and consumer spending. Meanwhile, forecasts of peak oil demand continue to come in, the latest from Rystad Energy. The Norwegian energy consultancy served a surprise this week by forecasting that oil prices are about to drop sharply thanks to ample supply and a peak in oil demand growth. This forecast goes counter to observations made by Equinor’s chief economist, who noted that tight production capacity globally was part of the reason why oil may soon top $100 per barrel. It also goes counter to what OPEC has been warning about for years now: underinvestment in new production that would ultimately compromise the global supply situation. For now, it appears the market is reasonably well supplied despite the Saudi and Russian cuts. But the balance appears to be delicate, with a deficit around the corner, according to most analysts. Once that is official, it will become clear just how elastic oil demand has become in the past couple of years or, alternatively, how inelastic it continues to be. And that might settle the debate about peak oil demand, at least for a little while.
Crude supply and inflation risk for India if war spreads
Senior Economists are in a wait and watch mode as to the impact of Israel – Hamas war on the Indian economy while agreeing there may be a crude oil supply challenge if the war spreads across West Asia. They said it is a bit early to comment on the impact as the situation has to be monitored. “In the worst case, there is also a likelihood of the conflict spreading across West Asia and involving several nations. That may lead to further supply challenges in crude oil where supply cuts by OPEC+ (Organisation of Petroleum Exporting Countries and other oil producing countries) have already led to a rise in global prices,” Suman Chowdhury, the Chief Economist and Head of Research, Acuite Ratings & Research Ltd told IANS. Chowdhury said with the rise in geo-political conflict, the global economy and trade may face further slowdown with a resurgence of inflation risks and higher volatility in the global markets which in turn can have an adverse effect on the rupee. “However, the direct impact of the conflict is going to be limited as Israel’s trade with India is a little over $10 billion with exports to Israel at $8.5 billion and imports at $2.3 billion in FY23,” Chowdhury said. On his part Madan Sabnavis, Chief Economist, Bank of Baroda told IANS: “The economic impact will be seen through oil price first followed by currency.” On Reserve Bankof India’s (RBI) likely action, Chowdhury said it would only watch the evolving scenario and is unlikely to take any action at this point in time. “As RBI gets more watchful, bond yields will stay high. Inflation impact will be seen on the Wholesale Price Index and not Consumer Price Index. As retail fuel prices will not be changed, higher crude prices will show on the oil marketing companies or fiscal if the government absorbs the same,” Sabnavis said. “However, it will (RBI) endeavour to maintain the system liquidity on a tighter side through tools like OMO (open market operations) sales which may have an impact on bond yields,” Chowdhury said. “Indian government may also take mitigating steps to cool down the prices of essential commodities in case the conflict expands to a full fledged war in West Asia and new supply bottlenecks emerge,” Chowdhury added. On the other hand the gold prices are expected to go up dueto the war.
Higher Fuel Prices Due To VAT Charged By States
Union petroleum minister Hardeep Singh Puri on Saturday said that though fuel prices were high in Madhya Pradesh, in some other states, petrol/diesel prices were higher as it all depended on value-added-tax (VAT) being charged by the states. He was replying to a question on high fuel prices in the state on the sidelines of a function in Indore. The price of petrol is close to Rs 110/litre in MP. “In letters to MPs, I have mentioned about international prices of fuel as in last two years of representative period, North Asia and countries adjacent to India have witnessed 60-70 percent rise in petrol and diesel rates. Petrol is being sold at Rs 330/litre in Pakistan while in our country due to decisions taken by PM Narendra Modi, it’s rate has reduced by 5 percent compared to two years ago,” he said. Puri said that in the same period, the rate of diesel reduced by 0.2perent. “It happened due to Modiji reducing central excise duty while some BJP-ruled states decreased VAT. Some states however could not do that,” he said. The minister said that in West Bengal, petrol price was probably around Rs 111/litre while it was Rs 96/97 per litre in some BJP-ruled states.
Call for fossil fuel phase-out on global stocktake agenda: UN report
According to the UNFCCC report, possible elements of the global stocktake outcome could include a call to parties on phase-out of fossil fuels, support global commitment to accelerate the phase-out of unabated fossil fuels, and efforts to phase out inefficient fuel subsidies by 2025, supported by enabling environments and upscaling investments in renewable energy. The International Energy Agency IEA said in September that global demand for oil, natural gas and coal is likely to peak by 2030. Calls to phase out unabated fossil fuels, reform subsidies on it and triple global renewable energy capacity may find their way into the outcome of the first-ever global stocktake, a periodic assessment of collective efforts to achieve the Paris Agreement goals. The United Nations Framework Convention on Climate Change (UNFCCC) recently released a report summarising submissions made by countries and non-party stakeholders regarding the political response to the global stocktake. ”They will inform negotiations but there’s no guarantee any particular element will make it into the final text. With that said, fossil fuel phase-out is prominently featured in this long list of possible decision elements,” Natalie Jones, a policy advisor at climate policy think tank International Institute for Sustainable Development (IISD), said. According to the UNFCCC report, possible elements of the global stocktake outcome could include a call to parties on ”phase-out of fossil fuels, support global commitment to accelerate the phase-out of unabated fossil fuels, and efforts to phase out inefficient fuel subsidies by 2025, supported by enabling environments and upscaling investments in renewable energy”. The International Energy Agency (IEA) said in September that global demand for oil, natural gas and coal is likely to peak by 2030. The IEA termed it an encouraging development but ”not nearly enough” to limit the rise in global average temperatures to 1.5 degrees Celsius. Countries promised to phase out ”inefficient” fossil fuel subsidies at COP26 in Glasgow in 2021 and COP27 in Sharm El Sheikh in 2022, but they hit record highs in 2022. A report that came ahead of the G20 Leaders’ Summit in New Delhi in September said countries in the bloc allocated a staggering USD 1.4 trillion of public funds to support fossil fuels in 2022, aiming to counter the impact of their soaring prices due to the Ukraine war and strengthen energy reserves.
India, Saudi Arabia sign MoU for green hydrogen supply chain, power grid interconnection
Nearly a month after signing the energy cooperation pact which spoke about power grid interconnectivity, India and Saudi Arabia have signed a memorandum of understanding (MoU) for green hydrogen supply chain and power grid interconnection. The MoU was signed on Sunday in Riyadh, Saudi Arabia by union minister for power and new & renewable energy RK Singh and the minister of energy, Saudi Arabia, Abdulaziz bin Salman Al-Saud on the sidelines of the MENA Climate Week 2023. “This MoU aims to establish a general framework for cooperation between the two countries in the field of electrical interconnection; exchange of electricity during peak times and emergencies; co-development of projects; co-production of green/clean hydrogen and renewable energy; and also establishing secure, reliable and resilient supply chains of materials used in green/clean hydrogen and the renewable energy sector,” said a statement from the ministry of power.
Oil Prices Set For Their Sharpest Weekly Drop In Six Months
Crude oil prices were set to record their sharpest weekly decline since March, pressured by demand concerns despite OPEC+’s decision to continue constraining supply. Since the start of the week, Brent crude has shed close to 12% and West Texas Intermediate has declined by almost 9%. The crash, which seemed to be sparked by the EIA’s report of weak U.S. gasoline demand, led to a rapid change in market sentiment. The decline was also tied to a bond market selloff that sparked worry about the prospects of the global economy and, by extension, oil demand. “Oil prices are stabilizing after a brutal week that saw a relentless bond market selloff trigger global growth worries,” Reuters quoted OANDA senior analyst Edward Moya as saying. Meanwhile, inflation in the United States has continued to take its toll on consumer spending, including on fuels, Bloomberg noted in its latest report on prices. “The decline in gasoline demand is unsurprising as inflation’s erosion on household budgets comes home to roost,” Mizuho Bank analyst Vishnu Varathan told the news outlet in comments on the latest gasoline consumption data out of the U.S., which showed a marked weakening. The EIA reported on Wednesday that gasoline inventories had added 6.5 million barrels in the last week of September, which was the largest inventory build since January 2022, ING said in a note, which also highlighted the fact this was the weakest week for gasoline demand in the U.S. since the early 2000s. More sharp swings in oil prices are possible later today after the Bureau of Labor Statistics releases the jobs report for September. If the labor market remains tight, it would fuel expectations of more rate hikes, which would weigh further on crude oil. Next week, all eyes will be on the latest inflation data from the U.S. and economic updates from China. With the latest OPEC+ meeting now behind us, economic concerns have undoubtedly become the primary concern of traders, even as the market remains tight.