Standard Chartered: All-Time-High Demand Will Push Oil To $100
U.S. oil futures slipped below $81/bbl on Tuesday after weak economic data out of China prompted surprise interest rate cuts by the People’s Bank of China. China’s industrial production rose 3.7% in July compared to a year ago, well below the 4.4% increase analysts had predicted while real estate investment in July accelerated to a 8.5%Y/Y decline. Thankfully,oil-specific data came in much more positive, with refiners processing 14.93M bbl/day of crude oil in July, up 31% Y/Y and 40,000 bbl/day higher than the June figure. China worries aside, physical markets continue to show signs of strength, with Asian refineries expected to continue ramping up imports while crude inventories at the Cushing, Oklahoma, hub are expected to drop to their lowest level since April. Supplies have become increasingly tight since late June as Saudi Arabia and Russia cut production. Indeed, the latest energy report by the International Energy Agency (IEA) revealed that global oil demand grew by 3.26 million barrels per day in Q2, reaching an all-time high of 103 mb/d. The IEA estimates that the call on OPEC and inventories will be 30 mb/d in Q3 and 29.8 mb/d, which implies inventory draws of over 2mb/d in both quarters at current OPEC output levels; the IEA assessed OPEC output at 27.86 mb/d in July. The call on OPEC is a measure of the “excess demand” that OPEC countries face, and equals the global oil demand minus both the crude oil production by non-OPEC countries and the production by OPEC countries which are not subject to quota agreements. Brent to Rally Past $100/bbl In Q4 Commodity analysts at Standard Chartered have buttressed that view saying their projections also imply large inventory draws peaking at 2.9 mb/d in August. However, their timing for when demand will hit a new high is a couple of months later than the IEA’s. StanChart estimates that June demand was about 0.5 mb/d below August 2019’s all-time high, but expects the record will be exceeded in the current month. According to the analysts, highly effective producer output restraint, led by Saudi Arabia, will create the conditions for a price rally that will take Brent prices above this year’s high at $89.09/bbl onto their Q4-average forecast at $93/bbl, with a likely intra-quarter high above $100/bbl. Related: Kurdistan Oilfield Restarted Despite Ongoing Export Halt Last month, the Energy Information Administration (EIA) forecast total U.S. output will hit 12.61M bbl/day in the current year, eclipsing the previous record of 12.32M bbl/day set in 2019’s and easily beating last year’s 11.89M bbl/day. U.S. crude oil output is up 9% Y/Y, which under normal circumstances would blunt OPEC’s efforts to keep supplies low in a bid to goose prices. There is little doubt the U.S. Shale Patch is largely responsible for keeping oil markets well supplied and oil prices low: Rystad Energy has estimated that whereas OPEC and its allies have announced cuts amounting to ~6% of 2022’s production, non-OPEC supply has made up for two-thirds of those cuts, with the U.S. accounting for half of that. Thankfully, U.S. output is unlikely to go high enough to put significant pressure on international prices. StanChart says the sharp tightening shown in most H2 balances is starting to spill-over into physical markets, and oil prices appear to be well supported to overcome the negative news coming from China. Meanwhile, the European gas market remains highly volatile. Reports of potential strike action at Australian liquefied natural gas (LNG) facilities about a week ago caused Dutch Title Transfer Facility (TTF) prices to spike 40% higher, peaking at EUR 43.545 per megawatt hour (MW/h). Whereas most of the upward move was swiftly reversed, front-month TTF still managed to settle at EUR 34.434/MWh on 14 August, a w/w gain of 13%. TTF prices have now risen 21.4% over the past two weeks despite increasingly bearish inventory dynamics. According to Gas Infrastructure Europe (GIE) data, EU gas inventories stood at 103.84 billion cubic meters (bcm) on 13 August, up 19.25 bcmY/Y and 17.86bcm above the five-year average. Europea’s gas stores are now 89.5% full, a level they took 57 more days to reach last year. The pace of refill continues being torrid, with the build over the past week clocking in at 2.56 bcm, the fastest in any seven-day period since late-May. EU gas inventories are currently just 5.59 bcm below last year’s high; a mere 8.64bcm below the all-time high and just 12.25bcm below the GIE estimate of full capacity. It will be interesting to see how the markets react when Europe’s gas stores are finally full.
The Impact Of Looming Strikes At Australian LNG Facilities Should Be Limited
A prolonged stoppage is the least likely scenario of potential strikes at Australian LNG facilities accounting for 10% of global supply, according to Reuters’ Asia commodities and energy columnist, Clyde Russell. This weekend, members of the union Offshore Alliance unanimously endorsed giving Woodside seven working days’ notice of Protected Industrial Action if the workers’ bargaining claims for the Woodside Platforms are not resolved by Wednesday, August 23. On Sunday, the unions at Woodside’s North West Shelf offshore gas platforms said they could go on strike as early as on September 2 if their demands are not met. Woodside’s talks with its LNG workers have so far failed to produce an outcome that would avert a strike at the country’s largest LNG facility, the North West Shelf. There, 99% of workers voted in favor of industrial action. Australia’s labor regulator earlier this month gave the go-ahead to industrial action at Woodside and Chevron LNG facilities, in case the workers’ votes are in favor of it. Natural gas prices in Europe and in Asia spiked when the news of the potential strikes broke. They have since retreated but if actual strikes begin, they would affect a tenth of the world’s supply of liquefied natural gas and another spike could follow. Woodside’s North West Shelf is the largest LNG production project in Australia, with a capacity of 16.9 million tons annually, followed by Chevron’s Gorgon, which has a capacity of 15.6 million tons. Wheatstone, also operated by Chevron, can produce 8.9 million tons of LNG annually. Together, the three produce about 40 million tons of LNG per year. Because of that substantial capacity, disruption at the three facilities would send ripples across the global gas market, sending prices higher and once again pricing poorer buyers out of the market. In addition, the pre-winter seasonal rally of LNG tanker charter prices has started earlier than in previous years amid expectations of high demand for the winter and uncertainties over the potential strike in Australia.
Green Hydrogen standards: India says H2 produced using RE will be classified as ‘green’
India joined the select league of countries of the world on Saturday as it notified its own standards for hydrogen to be classified as ‘Green Hydrogen.’ According to an official order dated August 18, the Ministry of New and Renewable Energy (MNRE) outlined the emission thresholds that must be met in order for hydrogen produced to be classified as ‘Green’, ie, from renewable sources. The scope of the definition encompasses both electrolysis-based and biomass-based hydrogen production methods. According to the notification, India will classify Hydrogen as ‘Green’ if it is produced using Renewable Energy (RE) through methods like, but not limited to, electrolysis and biomass conversion. Renewable Energy will also include electricity generated from renewable sources which is stored in an energy storage system or banked with the grid. After discussions with multiple stakeholders, the Ministry of New and Renewable Energy has decided to define Green Hydrogen as having a well-to-gate emission (ie, including water treatment, electrolysis, gas purification, drying and compression of hydrogen) of not more than 2 kg CO2 equivalent per kg of Hydrogen (H2) taken as an average over the last 12-month period.
Nigeria Has Lost $46 Billion Worth Of Crude Oil To Theft
In the decade to 2020, Nigeria lost to oil theft more than 619.7 million barrels of crude oil valued at $46.16 billion, representatives for the Nigeria Extractive Industries Transparency Initiative (NEITI) said at a forum this week. During the period 2009 to 2020, Nigeria’s losses to oil theft averaged 140,000 barrels per day (bpd) valued at $10.7 million daily, the organization said, as quoted by local outlet Leadership. NEITI has compiled reports to establish how much oil, gas, and mining companies paid to the country and how much of those revenues were actually received by the government. More recently, Nigeria plans to hold an international roadshow to attract investments in its upstream sector, the petroleum regulator of OPEC’s biggest African oil producer said in a speech shared with Reuters this week. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) plans to organize in the coming weeks an international roadshow to pitch upstream investments in the country, which looks to boost its oil production and significantly raise its natural gas output. “Whereas the global imperatives for energy transition is clear and justified, the need for Africa’s energy security, economic development and prosperity cannot be overemphasised,” the Nigerian regulator said. Nigeria aims to significantly increase its oil production to up to 1.7 million bpd by November 2023, hoping to win a higher quota in the OPEC+ agreement, Gabriel Tanimu Aduda, Permanent Secretary at Nigeria’s Ministry of Petroleum Resources, told Energy Intelligence last month Nigeria has consistently failed to produce to its quota in the OPEC+ agreement. The combination of pipeline vandalism and oil theft with a lack of investment in capacity has made Nigeria the biggest laggard in crude oil production in the OPEC+ alliance. Oil theft and pipeline vandalism have long plagued Nigeria’s upstream oil and gas industry, driving majors out of the country and often resulting in force majeure at the key crude oil export terminals.
IndianOil, BPCL To ONGC: Here’s How The Oil & Gas Sector Fared In Q1
The aggregate consolidated net profit of Indian oil and gas companies more than doubled in the June quarter of fiscal 2024. The 21 companies considered for the analysis posted cumulative profit growth of 134% year-on-year to 574.794 billion in the April-June period. Public sector refiners led the profit growth for the sector, with Indian Oil Corp. leading the pack as it recorded a net profit of Rs 137.5044 billion, compared to a net loss of Rs 19.925 billion in the year-ago period. Bharat Petroleum Corp. came in second with a consolidated net profit of Rs 105.509 billion, compared to a net loss of Rs 62.631 billion during the same period last year. Hindustan Petroleum Corp. posted a net profit of Rs 62.039 billion, compared to a net loss of Rs 101.969 billion in the June quarter of fiscal 2023, while Hindustan Oil Exploration Co.’s profit doubled to Rs 661 million from Rs 324 million a year ago. However, Chennai Petroleum Corp. posted the biggest net profit fall of 76% year-on-year to Rs 5565 million in the June quarter. This was followed by Supreme Petrochem Ltd. and Mangalore Refinery and Petrochemicals Ltd. which reported a 63% fall in net profit each. In terms of revenue, the sector saw an aggregate 13% fall in revenue growth, mainly on account of lower crude prices. Hindustan Oil Exploration, Deep Industries Ltd., and Castrol India Ltd. recorded the highest year-on-year revenue growth at 100%, 39%, and 7.4%, respectively. Sector giants in terms of market capitalisation like Reliance Industries Ltd., Oil and Natural Gas Corp., and Indian Oil saw a fall in revenue growth. Revenues of Reliance Industries Ltd. and Oil and Natural Gas Corp. fell by 20% each, while Indian Oil’s top line was down by 12%. Oil India Ltd. witnessed the highest revenue fall as sales slipped by 42%. This was followed by Chennai Petroleum and Mangalore Refinery, which recorded a 35% and 34% decline in revenue, respectively.
India Losing Its Steep Discount on Russian Crude Oil
The discount enjoyed by India on Russian crude oil since Moscow’s full-scale invasion of Ukraine in February 2022 has now shrunk from around $30 to $4 per barrel. Yet, while steep discounts have plunged, the Russian-managed shipping rates continue to remain higher than normal. India is now bearing anywhere between $11 and $19 of shipping costs per barrel from the Russian ports to India, which is higher than the rates for similar distances from other countries (Economic Times, July 10). Moreover, the price of Urals-grade oil has surged and surpassed the $60 price cap imposed by the Group of Seven (G7) countries, thus making it difficult for India to continue its oil trade with Russia in US dollars. As such, New Delhi is alternatively considering payments for Russian oil in Chinese yuan, as Russia has been banned from using the international SWIFT system due to its invasion of Ukraine. The price for Urals crude surged following the commitments made by Saudi Arabia and Russia to cut output by 1 million barrels per day (bpd) and exports by 500,000 per day starting in August 2023 (Times Now, July 16). India is the world’s third-largest importer of oil. As a result, New Delhi fully exploited the rapidly changing situation in the global oil market after Russia invaded Ukraine. India was able to further capitalize on the situation as some Western companies shunned buying Russian crude in retaliation for Moscow’s war (Al Jazeera, January 17). Only two months after the Kremlin’s invasion, Russia became India’s fourth-largest oil provider. New Delhi imported between 970,000 and 981,000 bpd of crude oil from Moscow in 2022–2023, which accounts for more than a fifth of India’s overall imports (see EDM, April 27). On December 5, 2022, the European Union and G7 imposed a $60 price cap on Russian oil to cut Moscow’s oil revenues and consequently limit its ability to finance its war. Before the embargo, India’s December 2022 oil imports from Russia were the highest in seven months. According to one estimate, Indian imports surged to an all-time high of 1.25 million bpd, about a quarter of the 4.9 million bpd New Delhi purchased overall. The Organization of the Petroleum Exporting Countries witnessed their share in India’s crude imports reduced to 64.5 percent in 2022, from a peak of 87 percent in 2008 (Al Jazeera, January 17). According to some estimates, India’s total bill of discounted Russian crude oil from April 2022 to May 2023 is valued at $186.45 billion; without the discount, this bill would have been $193.62 billion on average. Hence, India saved at least $7.17 billion just through purchasing discounted Russian oil (Indian Express, July 5). And the story does not end here, as India opened a backdoor to European markets and began to resell the discounted Russian oil it had purchased. New Delhi bought more and more Russian oil and exported it to Europe after refining it into fuel. This helped India boost its exports of diesel and jet fuel to Europe, with the country exporting between 70,000 and 75,000 bpd to Europe already for the 2023 fiscal year (see EDM, April 27). Now, it seems that the honeymoon is over for India. Today, the steep discount on Russian crude has decreased due to various factors. One major reason for the shrinking discount is the higher and more opaque costs for the shipping and insurance involved in the delivery of Russian oil to India. New Delhi buys crude oil from Moscow on a “delivered” basis, which means that the Kremlin makes all the arrangements for shipping and insurance. As such, invoicing for oil remains under the $60 price cap; however, the shipping and insurance costs are given by the three Russia-arranged shadow entities, which consume a large portion of Russian oil revenues. According to Indian refiners, the overall identity and nature of these entities remain opaque. Nevertheless, if these costs were taken into consideration, Russia’s Urals crude is actually being sold at a price around $70–$75 per barrel (Economic Times, July 10) Another reason for India’s narrowing discount is that Russian oil has found additional buyers, including China and Pakistan. Some Indian officials hold China’s rising oil demand as responsible for the decrease in Russia’s discount to India. “With Russian oil finding more buyers, the discounts to Indian refiners have been coming down. Earlier, we were getting discounts that varied from cargo to cargo,” one government official said. Another official mentioned, “We used to get around $15–$20 per barrel discount on Russian oil cargoes depending on what used to be the price in the spot market. That discount has become less now” (Wionnews.com, April 28). For Moscow, Pakistan has become a new outlet in South Asia for selling its crude oil. On July 12, former Pakistani Petroleum Minister Musadiq Masood Malik disclosed that Islamabad is in talks with Moscow for a second shipment of discounted Russian oil following the successful arrival in June 2023 of the first cargo of 100,000 tons of Russian Urals-grade crude to Pakistan (Dawn, July 12). Islamabad placed its first order for discounted Russian crude in April (Dawn, June 11). At present, Pakistan mainly relies on Saudi Arabia and the United Arab Emirates for 80 percent of its oil needs, about 154,000 bpd. Thus, the projected 100,000 bpd from Russia would significantly reduce Pakistan’s dependence on Middle Eastern fuel (Dawn, June 11).
Modi govt may soon decide on cutting petrol tax among other steps to quell inflation before Vote
Indian officials are considering a plan to reallocate as much as Rs 1000 billion ($12 billion) from the budgets of various ministries to contain a surge in food and fuel costs without imperilling the federal deficit target, according to people familiar with the matter. Prime Minister Narendra Modi will take a decision in the coming weeks, which could include lowering taxes on local gasoline sales and easing import tariffs on cooking oil and wheat, the people said, asking not to be identified as the discussions are private. It would be the second straight year of similar adjustments to contain costs for consumers after the government unveiled a $26-billion plan last year. The proposals follow the central bank’s last week rate decision where it left borrowing costs unchanged — one of the highest in Asia — flagging risks from soaring prices Shares of Hindustan Petroleum Corp., Bharat Petroleum Corp. and Indian Oil Corp. erased some of the earlier losses on news that India will cut domestic fuel taxes
ADNOC Gas Signs LNG Deal With Japanese Energy Giant
ADNOC Gas, the natural gas arm of Abu Dhabi’s state energy group, has signed an agreement with Japan Petroleum Exploration (Japex) to supply liquefied natural gas (LNG) for five years. The LNG supply deal is valued between $450 million and $550 million and “builds on the long-standing bilateral relationship between the UAE and Japan and ADNOC’s track record of fostering mutually beneficial strategic partnerships with Japanese energy companies,” Emirates News Agency quoted ADNOC Gas as saying. Japan, heavily dependent on energy imports, is looking to boost its energy security and lower import bills amid volatile energy commodity prices and altered energy flows following the Russian invasion of Ukraine. Last month, Japanese Prime Minister Fumio Kishida visited the United Arab Emirates (UAE) during a trip in several Arab Gulf states to discuss energy and trade relations. ADNOC and ADNOC Gas, on the other hand, are looking to expand their international presence and have signed several major deals abroad in recent weeks. ADNOC Gas signed in July a long-term agreement to supply LNG to Indian Oil Corporation, in a deal worth between $7 billion and $9 billion. Under the terms of the agreement, ADNOC Gas, the integrated gas unit of Abu Dhabi National Oil Company (ADNOC), will export up to 1.2 million metric tonnes per annum (mmtpa) of LNG to Indian Oil over a period of 14 years, the Abu Dhabi company said in a statement. ADNOC Gas, which supplies around 60% of the UAE’s sales gas needs and has access to 95% of the UAE’s huge gas reserves, looks to expand its global presence as the LNG market grows and countries look to diversify supply to boost energy security. Earlier this month, ADNOC announced it would buy 30% of the Absheron gas field in the Caspian Sea in Azerbaijan by acquiring stakes from the current partners in the field, TotalEnergies and SOCAR. After completion of the transaction, TotalEnergies and SOCAR will each own 35% in Absheron, and ADNOC will have 30% in the gas and condensate field, where first gas was achieved last month.
Russian Crude Oil Discount For India Shrinks
The discount of Russian oil exported to India has tightened considerably, from some $30 to Brent crude last year to as little as $4 per barrel, Eurasia Daily Monitor has reported, adding that shipping costs, on the other hand, have increased. Per the agency, the shipping costs per barrel of Urals sent to India now vary between $11 and $19, which Eurasia Daily Monitor says is higher than the shipping costs for oil imported from other countries at similar distances. Meanwhile, Indian media reported that imports from Russia in the period between April and July doubled to $20.45 billion. This has turned Russia into India’s second-largest supplier of foreign goods, with oil and fertilizers making up the biggest share. In oil, Russia’s share of the Indian import market has ballooned from less than 1% last year to as much as 40% this year. That said, imports of Russian crude oil into India last month dipped and the decline could deepen this month, Kpler predicted recently as Russia pledged to reduce exports in line with OPEC+ efforts to support prices. In July, crude imports from Russia into India, the world’s third-largest oil importer, dropped to 2.09 million barrels per day, down from 2.11 million bpd in the previous month, Viktor Katona, head of crude analysis at Kpler, told Bloomberg earlier this month. At the same time, expectations that the narrowed discount of Urals to Brent would dampen India’s appetite for Russian crude appear to have been wrong. “There was a perception that India had limited capacity to refine medium sour grade of Russian crude, which would create a natural ceiling on Russian imports,” a Citi analyst told Bloomberg this month. “It has now been clearly demonstrated that such a bottleneck does not exist. This would imply that Indian refiners can continue with their Russian oil imports as long as discounts outweigh the higher logistics cost of imports,” Samiran Chakraborty, chief India economist at the Wall Street bank, also said.
APM Terminals Pipavav starts operations of Very Large Gas Carriers
Private port operator APM Terminals Pipavav on Monday said it has commenced operations of Very Large Gas Carriers (VLGCs). The vessel loaded with cargo from Ruwais, ADNOC Refinery Jetty, discharged 21,907 MT parcel at port Pipavav for Bharat Petroleum Corporation Ltd, Indian Oil Corporation Ltd and Hindustan Petroleum Corporation Ltd. The maiden berthing of the vessel MT Jag Viraat happened at the port earlier this month. With a major shift in all India LPG imports to VLGC vessels from earlier Medium Gas Carrier (MGC) ships, the VLGC handling capability at APM Terminals Pipavav becomes critically important. This will allow oil marketing companies to maximise their LPG imports efficiently and safely, the port operator said in a statement. Owned by Great Eastern Shipping Company, MT Jag Viraat is a VLGC vessel is 230 metres long.