$100 Oil Is Bad For The Economy (And For OPEC+)
Crude oil prices are on the rise, driven by stark cutbacks imposed by Saudi Arabia and Russia, the main forces behind OPEC+. The cuts, implemented by the oil cartel in order to bolster oil prices, have been extremely successful, with barrel prices rising by a whopping 30% since June. Now, prices are hovering ever closer to the USD $100 per barrel mark, and could even surpass that hallowed and feared metric on the back of Russia and Saudi Arabia’s recent announcement that they intend to extend the current voluntary production cuts. Historically, high oil prices have been nothing but good news for the oil industry, even as it causes strife in other sectors. But this time around, it might be too much of a good thing even for Big Oil. While high oil prices can spell pure profit for the oil sectors, it’s a fine line between stimulus and disincentive, as high prices at the pump can also cause significant dips in demand as the market reels from sticker shock. For example, in June and July of last year, when oil prices hit a blistering USD $110 a barrel average, gasoline demand in the United States plummeted by 4.1% compared to the same period in the previous year when oil was selling at USD $70 per barrel. And as that $110 mark fell, so too did the size of the year-over-year demand gap, underscoring the correlation between high oil prices and consumer reticence. And that cooling effect could be even stronger this year, as families in the United States have much fewer savings to fall back on and will likely be operating on a significantly tighter budget. According to the Bank of America Institute, the average savings of U.S. households making $50,000 to $100,000 a year have fallen by half. And that worrying downward trend is about to be exacerbated for millions when student-loan repayments resume next month, representing around $100 billion a month at a national level. Indeed, unsurprisingly, the spike in oil prices has caused much hand-wringing over at the Federal Reserve. Rising oil prices were key drivers of recession in the United States in the mid-1970s, as well as the early 1980s and 1990s, as energy markets and prices at the pump “drove up inflation and robbed consumers of purchasing power.” Accordingly, fears of recession are rising in lock-step with crude benchmarks. “Policymakers will be on high alert for a gasoline-driven rise in inflation expectations in particular, as they fear that could lead to a more broad-based increase in prices,” Bloomberg reported this week. “The run-up in oil prices is at the very tip top of my worries at this point,” Mark Zandi, chief economist at Moody’s Analytics, was quoted by Bloomberg. “Anything over $100 for any length of time, and we’re going to be very sick.” And the oil industry itself is likely not immune to this sickness. While the state of savings and household economics in the United States is precarious enough, the full impact of consumer drawbacks will be actually felt in developing countries – as usual. Bucking historical trends, the value of the U.S. dollar has only continued to rise along with oil prices, putting a painful squeeze on economies with weaker currencies and lower cash flows that are nonetheless forced to buy dollar-denominated oil. This will have a serious impact on global economics and energy markets, as these developing countries include the monster markets of India and China. While the USD $100 mark is not significantly financially distinct from, say, a USD $99 per barrel mark, three digits have an outsized psychological influence on consumers and on the energy market as a whole. Crossing that line will therefore cause disproportionate shockwaves to a strapped and fragile global market that the energy industry should be prepared for in the coming months. Luckily, most experts are predicting that the foray into triple digits will be short lived, but the damage done will likely have a longer shelf life.
India imports 37.4 T Green Ammonia from Egypt through VOC Port for the first time
India has imported 37.4 tonnes of Green Ammonia from Damietta Port in Egypt for the first time, said a statement released by the Ministry of Ports, Shipping and Waterways on Wednesday. “On September 23, 2023, V.O. Chidambaranar Port Authority, Tamil Nadu successfully handled 3×20 ISO Green Ammonia Containers, weighing 37.4 tons of Green Ammonia, from Damietta Port, Egypt, for Tuticorin Alkali Chemical and Fertilizers Ltd (TFL),” said the statement. TFL plans to import 2,000 MT of Green Ammonia this year.
Russian oil sold to India at 30% above Western price cap: Traders
Russia is selling oil to India at nearly $80 per barrel, some $20 above the Western price cap, traders said and Reuters calculations showed, as tight global oil markets help Moscow generate strong appetite for its exports. Russia’s main export grade Urals has been trading above the $60 per barrel Western price cap since mid-July amid output cuts by OPEC+ producers, including Saudi Arabia and Russia. India, which is the world’s third biggest oil importer, has become the top buyer of seaborne Russian oil, mainly Urals, since 2022 after Western sanctions against Moscow. Calculated Free on Board (FOB) estimates for Urals cargoes loading from Baltic ports in October were close to $80 per barrel on Thursday for Indian customers, according to traders’ data and Reuters calculations. “Russia has low inventory levels and their production is also cut,” said an official at an Indian refiner that regularly buys Russian oil, explaining the latest jump in prices. Cuts have helped narrow discounts for Urals at Indian ports to $4-$5 per barrel versus dated Brent from $6-$7 per barrel two weeks ago, four trading sources involved in the operations said and Reuters calculations showed. The traders referred to prices for cargoes loading in late October. “Urals prices are on the rise again. Alternatives are much more expensive and not easily available,” a trader familiar with the Russian oil market said. Indian Oil Corp, Bharat Petroleum Corp, Hindustan Petroleum Corp, Mangalore Refinery and Petrochemicals Ltd, HPCL Mittal Energy Let, Reliance Industries Ltd and Nayara Energy Ltd did not respond to Reuters’ emails seeking comments. Russian Urals oil typically gives higher yields of diesel, which accounts for about two-fifths of India’s overall refined fuel consumption. Meanwhile, Russia’s decision to ban diesel and gasoline exports added to the appeal of Urals crude, amid a looming shortage of the products globally. The Western price cap on Russian oil allows buyers to use Western services such as shipping and insurance in the event that crude trades below $60 per barrel. Russian oil has drastically reduced the use of Western shipping and insurance companies since the imposition of the cap, which is also challenged by a spike in global oil prices towards $100 per barrel. Turkey was the second biggest buyer of Urals oil cargoes in September, followed by China and Bulgaria, according to preliminary LSEG data. Russian oil is also now being sold to customers in new markets like Brazil, the Indian source said.
No investment in new coal, oil, natural gas should be made: IEA
As per updated report to its Net Zero Roadmap published by International Energy Agency on Tuesday, the path to 1.5 ̊C has narrowed, but clean energy growth is keeping it open. As per the roadmap, there is no need for investment in new coal, oil and natural gas. Global carbon dioxide (CO2) emissions from the energy sector reached a new record high of 37 billion tonnes (Gt) in 2022, 1% above their pre-pandemic level, but are set to peak this decade. The speed of the roll-out of key clean energy technologies means that the IEA now projects that demand for coal, oil and natural gas will all peak this decade even without any new climate policies. Positive developments over the past two years include solar PV installations and electric car sales tracking in line with the milestones set out for them in the IEA’s 2021 Net Zero by 2050 report Growth in clean energy is the main factor behind a decline of fossil fuel demand of over 25% this decade in the NZE Scenario. Tripling global installed renewables capacity to 11 000 gigawatts by 2030 provides the largest emissions reductions to 2030 in the NZE Scenario
Revenue loss still a road block to fuel GST
Petroleum products are unlikely to be brought under the Goods and Services Tax (GST) anytime soon, as doing so can cause states’ fiscal deficit to balloon, while also widening revenue losses for the Centre, two senior government officials told Mint. The total taxation on petrol and diesel, including state-levied value-added tax (VAT) and the centre’s excise duty, comes to about 35%-50% (45%-50% for petrol and 35%-40% on diesel), one of the officials said.
Govt planning performance review of CGD networks, gas pipelines, petroleum product pipelines
India’s downstream Oil & Gas regulator, Petroleum and Natural Gas Regulatory Board (PNGRB), is planning a thorough performance review of the country’s City Gas Distribution (CGD) networks, natural gas pipelines, and petroleum product pipelines. The idea is to study the natural gas infrastructure from the point of view of demand, supply and gaps in performance, with the larger aim of ramping up the share of natural gas in the country’s energy basket from the 6 per cent currently to 15 per cent. The Petroleum and Natural Gas Regulatory Board (PNGRB) is in the process of appointing an agency to conduct a study focused on the demand, supply, and feasibility of developing the natural gas infrastructure in India. This move comes as part of the government’s broader effort to assess and potentially refine the nation’s energy infrastructure. The designated agency will be responsible for reviewing various CGD networks and pipelines across the country. Engaging with all CGD, NGPL, and PPPL entities will be crucial, with the aim being to gather comprehensive data on natural gas pipelines, petroleum product pipelines, and existing CGD projects throughout India Further, the research will encompass policy, regulatory norms, and macroeconomic trends that influence the energy sector. Policy guidance, business model suggestions for city gas distribution and pipelines, and the creation of frameworks to balance the demand and supply of natural gas in India will also be within the purview of the selected agency. To facilitate this extensive review, the PNGRB has highlighted the need to have two dedicated professionals stationed at their New Delhi office for a span of two years. The Petroleum & Natural Gas Regulatory Board (PNGRB), established under “The Petroleum & Natural Gas Regulatory Board Act, 2006”, serves to regulate refining, processing, storage, transportation, distribution, marketing, and sale of petroleum, petroleum products, and natural gas, barring the production of crude oil and natural gas. Its aim is to protect the interests of consumers and entities involved in specific activities related to petroleum, petroleum products, and natural gas.
U.S. Oil Price Hits Highest Level In 13 Months
The benchmark U.S. oil price rose early on Thursday to the highest level since August 2022, extending Wednesday’s surge as U.S. commercial inventories continue to decline more than expected. WTI Crude prices exceeded $95 per barrel in early Asian trade on Thursday, hitting the highest price level in 13 months. The international benchmark, Brent Crude, also jumped and touched a new high for 2023 after topping $97 per barrel. Despite the continued strengthening of the U.S. dollar, oil rallied on Wednesday and early on Thursday in Asian trade as U.S. crude inventories continued to fall. The Energy Information Administration (EIA) reported on Wednesday a crude oil inventory draw of 2.2 million barrels for the week to September 22, far exceeding expectations of a draw in the low hundreds of thousands of barrels. In addition, the level of stocks at the Cushing hub has fallen to its lowest since July 2022, further boosting the U.S. benchmark oil price. Cushing, Oklahoma, is the delivery point for the NYMEX crude oil futures contract. Crude inventories at Cushing dropped by 943,000 barrels from the prior week to 22 million barrels, which is close to the operational minimum. The low stocks at Cushing and the falling trend in U.S. commercial crude inventories add to tightening supplies elsewhere as the market has started to feel the impact of the OPEC+ production and export cuts. “Stocks are drawing while demand keeps growing. We are still far away from a price level causing demand destruction,” Stefano Grasso, a senior portfolio manager at 8VantEdge in Singapore, told Reuters. On Wednesday, Craig Erlam, senior market analyst at OANDA, commented on oil’s resumed rally, “I think what we’ve seen over the last week or so is a little profit-taking and the fact it’s already on the march higher is potentially a sign of how bullish traders still are.”
Oil prices rise as supply concerns outweigh demand fears
Oil prices rose on Friday as concerns that a Russian ban on fuel exports could tighten global oil supply outweighed fears that further possible U.S. interest rate hikes could dent fuel demand, but they were still headed for a weekly loss in four. Brent futures for climbed 21 cents, or 0.2%, to $93.51 a barrel by 0103 GMT, while U.S. West Texas Intermediate crude (WTI) futures gained 23 cents, or 0.3%, to $89.86. Both benchmarks were on track for a small weekly drop after gaining more than 10% in the previous three weeks amid concerns about tight global supply as the Organization of the Petroleum Exporting Countries and allies (OPEC+) maintain production cuts. “Trading remained choppy amid a tug-of-war between supply fears that were reinforced by a Russian ban on fuel exports and worries over slower demand due to tighter monetary policies in the United States and Europe,” said Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd. “Going forward, investors will focus on whether the OPEC+ production cuts are being implemented as promised and whether the rise in interest rates will reduce demand,” he said, predicting WTI to trade in a range of around $90-$95. Russia temporarily banned exports of gasoline and diesel to all countries outside a circle of four ex-Soviet states with immediate effect to stabilise the domestic fuel market, the government said on Thursday. The shortfall, which will force Russia’s fuel buyers to shop elsewhere, caused heating oil futures Hoc1 to rise by nearly 5% on Thursday. The U.S. Federal Reserve on Wednesday maintained interest rates, but stiffened its hawkish stance, projecting a quarter-percentage-point increase to 5.50-5.75% by year-end. That buoyed fears that higher rates could dampen economic growth and fuel demand while boosting the U.S. dollar to its highest since early March, making oil and other commodities more expensive for buyers using other currencies. The Bank of England mirrored the Fed and held interest rates on Thursday after a long run of hikes, but said it was not taking a recent fall in inflation for granted.
India to get its first green hydrogen fuel cell bus
Union Minister of Petroleum and Natural Gas Hardeep Singh Puri is all set to inaugurate India’s first green hydrogen fuel cell bus at Kartavya Path in Delhi on Monday. According to Press Information Bureau (PIB), the initiative is part of Indian Oil’s efforts to conduct operational trials on designated routes in Delhi, Haryana, and Uttar Pradesh with 15 fuel cell buses propelled by green hydrogen. The green hydrogen fuel cell bus will be flagged off at Kartavya Path in the national capital. Green hydrogen at 350 bar pressure will be made available for the first time in India with this project, making it possible to run fuel cell buses. At its research and development campus in Faridabad, Indian Oil has also installed a refueling station that can replenish green hydrogen created by electrolysis using solar PV panels. Fuel cell technology In the world of e-mobility, fuel cell technology is acquiring prominence, with hydrogen serving as a fuel for fuel cells. The electrochemical mechanism in fuel cells converts hydrogen and oxygen into water efficiently, generating electricity. Green Hydrogen, produced through the use of renewable energy, has the potential to play a crucial role in such low-carbon and self-sufficient economic pathwAustin.
How The Transition Push Contributed To Higher Oil Prices
Earlier this week, Morgan Stanley said in a note that all signals for crude all were “flashing tightness”. The investment bank joined a growing number of forecasters expecting Brent crude to top $100 per barrel before the year’s end, again. What all these forecasters have in common is that all of them point out a discrepancy between demand for oil, which has remained strong, and supply, which has become increasingly constrained. At a time when governments in the West are making a huge effort to reduce that demand. And supply, too. For now, they can only claim success in the supply area. And a major contribution to higher prices with that. When President Biden came into office, his first order of business was to effectively ban oil and gas drilling on federal lands. He later revoked his ban as retail fuel prices began climbing and the White House reconsidered its attitude to local supply of hydrocarbons. Not that it helped. Not when the whole energy policy of the administration has been oriented against the oil industry. We see the same situation in Europe, where the push against oil and gas is even stronger, and in other parts of the world, as well. Reuters reported this week, citing Rystad Energy data, that investment in oil and gas on a global scale would only grow moderately this year to $579 billion. That compared to an average annual investment rate of $521 billion for the period between 2015 and 2022, after the 2014 peak, which stood at $887 billion. Also this week, the Energy Information Administration reported that oil production from the U.S. shale patch was set to decline in October from September after the September average was also forecast to be lower than the average for August. In fairness, the EIA has been proven too pessimistic in its forecast by the actual production data, with its forecast production decline for August actually turning out to be a modest monthly increase in production. Yet production did indeed decline this month, albeit still quite modestly. The bigger problem is it did not increase in any meaningful way, contributing to global tightness. Production is not increasing in any meaningful way elsewhere, either, even if we set aside for a moment the Saudi and Russian cut of a combined 1.3 million barrels daily. But demand is still strong, which has led to suggestions from transition campaigners that governments should switch targets and, instead of supply, focus on curbing demand by taxing the use of hydrocarbons. This state of affairs does not bode well for the future energy security of a world that will consume close to 103 million barrels of crude oil every day this year, according to the latest to forecast peak oil demand, the International Energy Agency. The chief executive of Aramco, who has been one of the most vocal critics of the transition push as it is being conducted, recently leveled a new dose of criticism at its planners: “The current transition shortcomings are already causing mass confusion across industries that produce and/or rely on energy. Long-term planners and investors do not know which way to turn,” Nasser said at the World Petroleum Congress in Canada. Exxon’s CEO was more succinct: “If we don’t maintain some level of investment in the industry, you end up running short of supply, which leads to high prices” – a scenario that is currently unfolding in Europe and the United States. The reason there is no sufficient investment, according to the industry, is the uncertainty caused by the transition agenda of the governments where they operate. Indeed, when you have no clarity of the regulations that your government would direct your way as part of its efforts to fight climate change, investment decisions become even harder than usual to make. As the executive chair of Canada’a Cenovus told Reuters, “If you want to add 100,000 barrels a day of production, you’re going to spend billions and billions of dollars. In terms of any real meaningful investment in large projects, that’s probably going to have to wait for some more clarity on the government front.” The situation is even worse for African countries that want to pursue their energy independence by developing their own hydrocarbon resources. Banks and international lenders such as the World Bank and the International Monetary Fund have made it quite clear they would not be lending for oil and gas development. “We are being intimidated into running away from fossil fuel investment,” the secretary general of the African Petroleum Producers’ Organization, Omar Farouk Ibrahim, said as quoted by Reuters. Yet Big Oil is still big enough to be able to put some money into new production without too much worry about the future. TotalEnergies recently said it could commit $9 billion to exploration in Suriname. Shell is drilling in Namibia and making discoveries that will require fresh investments to develop. Whether these new exploration ventures would be enough to make up for lower production in legacy regions is hard to say. Perhaps, if governments really get down to curbing demand, balance could return to oil markets. For a short while. Because people really don’t like to be told how little energy to use.