U.S. Crude Joins Biggest Oil Benchmark
Starting today, U.S. oil will be part of the Brent crude basket that underlies the world’s most traded benchmark contract. It will be the first non-European grade included in the basket, highlighting the change that the U.S. shale revolution brought about for the global oil market. “Since the restart of U.S. crude exports in 2015, WTI Midland has become a baseload grade for European refiners and a core part of the North Sea oil market,” Vera Blei, who is in charge of oil market price reporting at S&P Global Platts, said in 2020. At the time, she added that the inclusion of WTI to the Brent basket “would provide additional volume and ensure the continued robustness of Dated Brent for the next decade and beyond.” Bloomberg reported on the ratings agency’s plans to include U.S. crude in the Brent benchmark three years ago, but these plans understandably lost the spotlight to Covid. But now that the pandemic is not the number-one news everywhere, S&P Global Platts’ plans re-entered the news space and, beginning today, the change is a fact. Brent used to be made up of five oil grades, produced at five North Sea fields: Brent, Ekofisk, Troll, Forties, and Oseberg. But the combined production of these five fields has fallen to less than 700,000 bpd from some 850,000 bpd in late 2020. Meanwhile, U.S. crude oil sold abroad has soared by more than 700% in less than ten years. From about half a million barrels daily right after the export ban was lifted at the end of 2015, to date, U.S. crude oil exports have expanded to over 4 million barrels daily. U.S. crude arriving in Europe specifically has topped 1 million barrels daily, reaching 1.25 million bpd in March. This is unlikely to change anytime soon as the EU, to its own displeasure perhaps, still uses quite a lot of oil and has to get it from somewhere that is not Russia. What better source than the U.S.? “WTI Midland is the best candidate for this because it already has a fairly similar refining slate to most of the North Sea grades,” said S&P Global’s director for crude and fuel oil markets in April, speaking to Reuters. It is also the best candidate because its production has been growing strongly in the past decade, unlike the production of Brent, Ekofisk, Troll, Forties, and Oseberg. By including WTI Midland in the Brent basket, S&P Global will make that basket more accurately representative of the physical oil trade situation. The more interesting part, however, is how the addition of WTI Midland would affect prices. Some analysts argue that, because it is cheaper, the addition of the U.S. crude will bring overall Brent prices down with it. Others note that the addition would increase the influence of U.S. events on global oil prices. “Bottom line for Brent is that it will be much more influenced by U.S. fundamentals such as Strategic Petroleum Reserve releases and Permian production,” Rebecca Babin, senior energy trader at IBC Private Wealth US, told Reuters in April. “Once you become a benchmark, you have influence over all the other grades of crude,” Surrey Clean Energy director Adi Imsirovic told the Wall Street Journal this week. This influence will continue, not only because there is now a U.S. crude grade added to the Brent benchmark. It is because U.S. oil production, even at a slower growth rate, will continue to be much stronger than European production. After all, Britain’s potential future Prime Minister just vowed to ban new oil and gas licensing for the North Sea if his Labour Party wins the next elections. Perhaps in the future, Brent crude will become even more international.
Saudi Aramco cuts June propane price by $105/mt to $450/mt
Saudi Aramco has cut June propane price by $105/mt month on month to $450/mt. This is on the back of ample supplies in Middle East and US and low petrochemicals demand from China, according to reports. This would be implemented in India from July. Hence, July propane would become cheaper by 17-18 percent versus Gujarat gas.
Nepal and India agree to construct two petroleum pipelines for smooth supply of petroleum products
An agreement has been reached between Nepal and India for the construction of two important pipelines in the ongoing India visit of Prime Minister Pushpa Kamal Dahal ‘Prachanda’. India would provide around Rs 17 billion for the same. Two petroleum pipeline projects would be constructed while it while Nepal has to construct a storage facility at its own investment. The government of Nepal has put the construction of petroleum pipeline in top priority in order to reduce huge chunk of money the country has been spending in supply of petroleum products. Two petroleum pipelines– from Siliguri of India to Jhapa, Nepal; and from Amalekhgunj of Bara to Lothar of Chitwan would be constructed for easy and smooth supply of petroleum products. Similarly, a storage would be constructed in Jhapa. Although Nepal Oil Corporation and Indian Oil Corporation had been holding discussions for the construction of the pipelines for long, no agreement was reached in this regard. An agreement has been reached in the government-level to forward these projects in course of India visit of Prime Minister Dahal now. According to Executive Director of Nepal Oil Corporation, Umesh Prasad Thani, two pipelines and a terminal of Jhapa would be constructed by India at grants. The NOC had been saying that Siliguri-Jhapa, Amalekhgunj-Lothar petroleum pipelines and storage facilities in Jhapa and Chitwan would be constructed and study for the same had already been conducted. It is believed that the construction of projects would be accelerated after today’s agreement. The total cost of these four projects is equal to Rs 17 billion as per the report jointly prepared by NOC and IOC in 2021. However, the cost may increase slightly due to price hike at international level. According to NOC, the distance of Amalekhgunj-Lothar pipeline is 62 kilometer while Siliguri-Jhapa pipeline is 50 kilometer. The capacity of Jhapa storage facility would be 42,000 kilolitres and of Lothar terminal 103,150 kilolitres.
India, China’s crude oil imports from Russia in May breach all-time highs, shows shiptracking data
India and China’s purchases of Russian crude oil in May are seen to have breached all-time highs. As buyers including these two big economies gorged on discounted supplies from Russia, it led to a fall in demand for oil from the Middle East and Africa, news agency Reuters reported citing shiptracking data. China, world’s No. 1 crude importer, India (world No. 3) are top buyers of Russian oil. In May, these two imported about 110 million barrels in May from Russia. This was a nearly 10% jump month on month and came despite American warnings against price cap evasion. Arrivals of Russian shipments in India are assessed to have reached a record high of 8.6 million tonnes (62.8 million barrels) while China is expected to have received 6 million tonnes, steady from April, Reuters said based on Vortexa data. Data from Kpler, another big tracker, showed a similar trend. As per Kpler, India’s imports touched a record of 66.7 million barrels and China’s was at 49.2 million barrels. According to the data, Indian refiners increased purchases of medium sour crude Urals and lighter grades such as Sokol and Varandey, in addition to a steady inflow of ESPO crude exported from the Pacific port of Kozmino. China, where refiners are pushing to cut feedstock costs and improve refining margins amid a slower-than-expected economic recovery, has bought more and more Russian oil in recent months. “Chinese buyers’ increased demand for Russian oil loading in April and beyond was supported by higher profitability of supplies amid softer freight and firmer differentials,” Reuters said quoting a trader. The lumpsum freight rates for tankers carrying crude from Russia’s Far East port Kozmino, a major ESPO export hub, to northern China fell to $2.2 million after hitting an all-time high of $2.4 million in mid-March, Simpson Spence Young data on Refinitiv Eikon showed. The rise in Russian supplies comes ahead of a meeting between OPEC and their allies including Russia on June 4. Producers face some pressure to act to support Brent futures which have fallen 5% this week to about $73 a barrel despite an OPEC+ pledge in April to cut more output from May.
Domestic natural gas price to remain steady at $6.5 per mmbtu in June: Oil ministry
The domestic natural gas price will remain steady at $6.5 per mmbtu in June, according to an oil ministry notification. Domestic natural gas price is determined every month as 10% of the average price of the India basket crude for the previous month. The gas price, as per the formula, fell to $7.58 per mmbtu for June from $8.27 in May. But since the gas price must stay within a Cabinet-determined band of $4-$6.5 per mmbtu, the effective price for June will not change. This price band applies only to gas produced by the fields operated by Oil and Natural Gas Corp and Oil India.
Gas import bill at USD 1.4 billion in April
India’s LNG import bill stood at USD 1.4 billion in April, up from USD 1.3 billion in the corresponding month of the previous financial year. In volume terms, India imported 2,213 MMSCM of LNG in April, down from 2,078 MMSCM in the corresponding month of the previous financial year.
Russia’s share in India’s crude oil imports soars to 19% in FY23
Russia’s share in India’s crude oil imports soared to 19.1% from 2.0% a year ago, the Reserve Bank of India (RBI) says in its latest annual report. “In 2022-23, there was a change in the sources of India’s crude imports. Russia’s share in India’s crude imports soared to 19.1 per cent from 2.0 per cent a year ago,” the RBI said. The country-wise import data shows Russia gaining the biggest share of the crude pie in FY23, while crude oil imports from Saudi Arabia and the U.S. showed a slight decline. The crude oil imports from Iraq and the U.A.E. remained almost the same as the previous fiscal year. Moreover, India’s combined crude oil imports from other nations declined in FY23 as compared to FY22. In value terms, crude oil imports were the highest in December 2022 at slightly less than $20 billion. In volume terms, crude oil imports were the highest at over 30 million tonnes in December, followed by March 2022 at over 25 million tonnes. The Centre for Research on Energy and Clean Air (CREA), an advocacy and research group that claims to have started in Helsinki in December 2019, accuses five countries led by India and China of ‘laundering’ sanctions against Russia by importing crude from Russia and selling refined products in ‘price cap coalition’ countries, mostly in Europe. Terming the five oil-exporting countries — China, India, Turkey, United Arab Emirates, and Singapore as “laundromat countries”, the report says India exported the highest volume of oil products to price cap coalition countries, one year since Russia’s invasion. India shipped 14.8 million tonnes, representing a 2.4% increase on the prior year in volume terms but a 48% rise in value terms. UAE, China, and Singapore followed as the largest oil products exporters one-year post-invasion, selling 14.2 million tonnes, 7.5 million tonnes, and 7.1 million tonnes respectively to price cap coalition countries. India’s imports from Russia range from petroleum and other fuels, fertilisers, coffee, tea, and spices. The price of crude oil and petroleum products in the international markets fluctuates depending on various factors i.e. demand-supply, geopolitical factors, and other market conditions. The prices of petrol and diesel in the country are linked to the prices of respective products in the international market and not to the crude oil prices. While the crude oil prices have declined from $84.67/bbl in January 2022 to $80.92/bbl in January 2023, international product prices of petrol have slightly gone down from $96.16/bbl to $95.59/bbl and prices of diesel have increased from $97.09/bbl to $111.22/bbl during the corresponding period, the government data shows.
Oil Prices Slip As Fears Of A U.S. Default Return
Crude oil prices retreated today in Asian trade following modest gains made on Monday on the news that President Biden and House Speaker and top Republican Kevin McCarthy had sealed a deal to raise the debt ceiling. However, reports have now emerged that some Republican hardliners in Congress will not support a deal that involves a higher debt ceiling, putting the successful passing of the deal in peril, Reuters has reported. At the time of writing, Brent crude was trading at close to $76.50 a barrel, while West Texas Intermediate was changing hands for a little over $72 per barrel. Both were down modestly from the start of trade today. Debt ceiling negotiations have been a major factor for oil price movements in the past couple of weeks, mostly because of the apparent inability of Republicans and Democrats in Congress to strike any semblance of an agreement on how to increase the federal government’s borrowing power. According to early reports on the tentative deal between Biden and McCarthy, it involves flat spending over the next two years and the recycling of unused Covid funds. However, it appears that this is not good enough for some Republicans both in Congress and outside it. “It’s not a good deal. Some $4 trillion in debt for – at best – a two-year spending freeze and no serious substantive policy reforms,” Rep. Chip Roy said on Twitter. “After this deal, our country will still be careening toward bankruptcy,” Florida Governor Ron DeSantis told Fox News. This means passing the deal would be tough but hardly impossible: history suggests Democrats and Republicans have always been able to set aside their differences in the name of avoiding a debt default. Besides the debt ceiling troubles in the U.S., another factor that has been pressuring prices is potentially conflicting messages from the two leaders of OPEC+, Saudi Arabia and Russia. While Saudi Arabia, through Energy Minister Abdulaziz bin Salman, has supposedly suggested further output cuts, Russia, via Deputy Prime Minister Alexander Novak, has said there was no need for further cuts.
ONGC Videsh has less than $100 mn stuck in Russia, says official
India’s flagship overseas firm ONGC Videsh has less than USD 100 million of dividend income lying in Russia because of Ukraine conflict but the company is not in a hurry to bring it back, a senior official said on Monday. Indian state oil firms have invested USD 5.46 billion in buying stakes in four different assets in Russia. These include a 49.9 per cent stake in the Vankorneft oil and gas field and another 29.9 per cent in the TAAS-Yuryakh Neftegazodobycha fields. They get dividends on profits made by the operating consortium from selling oil and gas produced from the fields. Soon after invading Ukraine in February last year, Russia put restrictions on repatriation of dollars to check volatility in foreign exchange rates. OVL, the overseas arm of state-owned Oil and Natural Gas Corporation (ONGC), got its last dividend back in July 2022. One dividend payout that came after that is lying in the company’s account in Russia. Its managing director Rajarshi Gupta said the dividend income lying in Russia is “less than USD 100 million.” “We are not in a hurry to get it back as the company has capital and operating expenses for the three projects in Russia,” he said. “It is business as usual as far as dividend is concerned.” OVL holds interest in Russia through a Singapore subsidiary.
ONGC to invest Rs 1 lakh cr in energy transition, targets net-zero by 2038
India’s top oil and gas producer ONGC will invest Rs 1 lakh crore by 2030 on energy transition projects as it targets net zero carbon emissions by 2038, its chairman Arun Kumar Singh said on Monday. The firm joins fellow state-owned oil and gas firms Indian Oil (IOC), Hindustan Petroleum (HPCL), GAIL and Bharat Petroleum (BPCL) in preparing roadmaps for net zero emissions as part of the nation’s commitment to deal with the climate challenge. Net-zero for a company means achieving a balance between the quantum of greenhouse gases it places into atmosphere and the amount it takes out. “We have done our internal workings and are now confident that we can achieve net-zero for Scope-1 and Scope-2 emissions by 2038,” Singh told reporters here. The company is planning to scale up electricity generation from renewable sources from 189 MW to 1 GW by 2030. It already has 5 GW of project planned in Rajasthan and is scouting for a similar capacity, he said adding ONGC would also look at offshore wind farms. It is also looking at setting up a 1 million tonne per annum green ammonia plant at Mangalore. “Overall, the investments will be of the order of Rs 1 lakh crore,” he said. The company reversed the declining trend of oil and gas production in 2022-23 and is now looking at raising output with projects both on the east and west coast. ONGC produced 19.584 million tonne (MT) of oil in 2022-23, up from 19.545 MT of previous year. The output is likely to rise to 21.263 MT in the current fiscal (April 2023 to March 2024), to 21.525 MT in 2024-25 and 22.389 MT in the following fiscal. Natural gas output is slated to rise from 20.636 billion cubic meters (bcm) in 2022-23 to 23.621 bcm in 2023-24, 26.08 bcm in the following year and 27.16 bcm in 2025-26. This rise in output is due to projects the firm is implementing on both the east and west coast to raise productivity from current fields and bringing new discoveries into production. As much as Rs 61,200 crore is being invested in 14 development and nine infrastructure projects including KG gas field and rejuvenation of existing producing fields like Mumbai High North and Heera. Singh said ONGC has planned a capital expenditure of Rs 30,125 crore in 2023-24, almost same as Rs 30,208 crore spent in the previous fiscal year. The company, which has 1.62 lakh square kilometer of acreage, is looking to take the acreage to 5 lakh square kilometer by acquiring one lakh square km every year, spending Rs 10,000 crore annually on exploration.