Oil Price Rally Continues Despite U.S. Inventory Build
Crude oil prices were on the climb again today, fueled by expectations of Israel’s retaliation against Iran after the latter showered it with missiles earlier in the week, sparking fears of a broader war in the Middle East. The biggest worry is, of course, Israel targeting Iranian oil infrastructure, which analysts expect it to do. “The next turn in this retaliation spiral may very well involve oil – via the degrading of Iran’s oil capacity or Iran’s proxies attacking oil and gas shipping from the Persian Gulf,” according to Piper Sandler analysts, as quoted by CNBC. Israeli media also reported that attacks on oil infrastructure were likely, citing government officials. However, oil’s gains were moderated by the U.S. Energy Information Administration’s latest weekly inventory report, which showed a build in crude oil. At 3.9 million barrels, the build was considerable enough to make oil traders bearish despite events in the Middle East. “Swelling U.S. inventories added evidence that the market is well supplied and can withstand any disruptions,” ANZ analysts wrote, as quoted by Reuters. That statement may be seen as a little questionable since the disruption of Libyan production drove prices higher earlier this year. Libya produces a third of what Iran does in crude oil. Disruption of Iranian production would quite likely have a palpable impact on international markets. On the other hand, as Energy Aspects’ Amrita Sen pointed out to Reuters. “In theory, if we lost all Iranian production – which is not our base case – OPEC+ has enough spare capacity to make up for the shock,” Sen said. Indeed, analysts have calculated that Saudi Arabia and the UAE alone could more than offset a potential loss of Iran’s total production, which is around 3.2 million barrels daily. Of that, Iran exports about 1.8 million bpd. Yet if Iran moves to block oil transport via the Strait of Hormuz, that would be a different story altogether. According to Rapidan Energy Group’s Bob McNally, a blockade on the chokepoint would send oil prices a lot higher.
IEA: Global Natural Gas Demand Set for New Record Highs
Amid a normalization of natural gas prices, global gas demand is picking up this year at a stronger pace than in the past two years and is set for a record high in 2024 and 2025, the International Energy Agency (IEA) said in a new report on Thursday. After the supply and price shock of 2022 and 2023, which weighed on natural gas demand, consumption is picking up pace this year and is set to rise by over 2.5% in 2024, or by just over 100 billion cubic meters (bcm). As a result, natural gas demand is set to reach a new record-high of 4,200 bcm in 2024, mostly thanks to growth in the Asia Pacific region, the IEA said in its annual Global Gas Security Review. Asia Pacific is expected to account for nearly 45% of incremental global gas demand this year. The primary growth drivers are industry and energy use, contributing more than half of demand growth. Moreover, Europe’s industrial gas demand is recovering as prices normalized and is also contributing to demand growth, even though it remains well below its pre-crisis levels. Next year, we will see another all-time high in global natural gas demand as consumption is expected to rise by another 2.3% (or nearly 100 bcm) in 2025. Similarly to 2024, growth is largely supported by Asia, which alone is expected to account for over half of incremental gas demand. Supply of natural gas remains tight, and geopolitical uncertainties are adding volatility to natural gas markets, according to the IEA. “The growth we’re seeing in global gas demand this year and next reflects the gradual recovery from a global energy crisis that hit markets hard,” said IEA Director of Energy Markets and Security Keisuke Sadamori. “But the balance between demand and supply trends is fragile, with clear risks of future volatility.”
Exclusivity with Reliance has ended but BP to continue with Ambani firm: India head
Global supermajor British Petroleum (BP) Plc’s exclusivity with Reliance Industries Ltd has ended but the energy giant will continue to pursue oil and gas as well as mobility ventures in India with the Mukesh Ambani firm owing to an unwritten strategic partnership, BP’s outgoing India head Sashi Mukundan said. BP in 2011 spent $7.2 billion to acquire 30% interest in 23 oil and gas blocks of Reliance. Eastern offshore KG-D6 block was the cornerstone of the deal that also provided for a 10-year exclusivity period which meant that BP would take up energy projects or investments in India only in partnership with Reliance. The firm has so far invested more than $2 billion across the energy value chain including bringing on stream three new deepwater natural gas projects in KG-D6 that account for one-third of India’s gas production. “We started working with Reliance as early as 2005 when first (the then BP CEO) Lord John Browne visited India,” Mr. Mukundan said. It finally fructified in the 2011 deal. “13 years since we did the upstream deal, not once have we gone back and looked at the contract,” he said, adding the partnership with Reliance is not a contract based but one based on “trust and relationship”. “So anytime we have any issues between the two partners, we just sit face to face. I just have to make a call or (send a) WhatsApp (message) and say I want to come and see you. And you know, between him (Mukesh Ambani, Chairman and Managing Director of Reliance Industries Ltd) and Mr (PMS) Prasad (Executive Director at Reliance), we resolve everything,” he said.
What does Middle East tension, oil price spike mean for India’s macro economy?
Iran’s recent ballistic missile strike on Israel have fuelled fears of a broader regional conflict across the Middle East, sending crude oil prices up by as much as 4 per cent overnight due to concerns over supply disruptions. As oil prices continue to rise, experts warned that India, which is heavily reliant on energy imports, could face significant economic challenges. Sugandha Sachdeva, Founder of SSWealth Street, explained that for every $10 increase in oil prices, India’s inflation rises by about 0.3 per cent, while the current account deficit (CAD) widens by $12.5 billion, equivalent to roughly 43 basis points (bps) of gross domestic product (GDP). “This can diminish consumer purchasing power as higher fuel costs drive up transportation and input expenses, leading to an overall increase in the prices of goods and services,” she said. Jigar Trivedi, Senior Research Analyst for Currencies & Commodities at Reliance Securities, agreed with Sachdeva. He warned that rising oil prices would lead to a higher dollar outflow from India, further weakening the rupee. Iran, a key OPEC (Oragnisation of the Petroleum Exporting Countries) member, exports approximately 1.7 million barrels of oil per day. Beyond its role as a global oil supplier, Iran’s strategic location near the Strait of Hormuz — through which major Persian Gulf energy producers such as Saudi Arabia, Qatar, and the UAE export their oil—heightening the risk of global energy supply disruptions, especially as tensions escalate. Iran’s missile strike followed Israeli military action in Lebanon, including a targeted killing of Hezbollah’s chief Hassan Nasrallah, has heightened concerns of further regional instability.
Oil Plunges Over 2% on Rumor Saudis Ready To Increase Output
Brent crude and the U.S. benchmark shed well over 2% on Thursday on mainstream media rumors that Saudi Arabia is planning to unleash more oil on the market, with the Kingdom willing to give up its $100-per-barrel price target. According to a Financial Times report earlier in the day citing unnamed sources, Saudi Arabia is willing to reduce its $100 price target to pump more oil, and OPEC+ is preparing to increase output collectively in December. At 10:41 a.m. ET on Thursday, Brent crude was trading down 2.10% at $71.92, for a loss of $1.54 on the day. The U.S. benchmark West Texas Intermediate (WTI) was trading down 2.27% at $68.11, for a loss of $1.58 per barrel on the day. Russian Deputy Prime Minister Alexander Novak said earlier on Thursday that OPEC+ was not discussing any proposals for changes to the expanded cartel’s output cuts. OPEC+ was originally expected to begin unwinding part of its 2.2 million bpd of oil output cuts beginning in October this year. That has since been delayed due to the oil price crash in late August and early September. OPEC+ delayed the start of the unwinding of the cuts by two months until December 2024. The cartel’s monthly report for September saw a reduced demand growth outlook, which has put heavy downward pressure on oil prices. The monthly report has turned bulls into bears, with traders now appearing to view the market as its most bearish since 2011. Foregoing its $100-per-barrel price target will mean that Saudi Arabia will have to accept low oil prices in order to regain market share. Saudi Arabia has been pumping some 9 million barrels per day (bpd) of crude for over a year, without veering from its target–a move that has cost it market share not only from non-OPEC+ producers but also from within the cartel itself.
India’s $100 Billion Oil Exploration Opportunity
Two weeks ago, we reported that a long exploration effort has led to the reportedly massive discovery of oil and gas reserves in Pakistan’s territorial waters, a cache so large that it is said it could change the economic trajectory of the beleaguered country. Although Pakistan’s hydrocarbon resources are yet to be quantified, some estimates suggest that this discovery constitutes the fourth-largest oil and gas reserves in the world. However, the oil majors appear unimpressed: in July, the country’s Petroleum Minister, Musadik Malik, told a parliamentary committee that no international companies were interested in offshore oil and gas exploration in Pakistan,and those in the country largely had the exit door in view. It comes down to security, and risk versus reward with Malik explaining to the committee that the cost of security is a major deal-breaker because “in areas where companies search for oil and gas, they have to spend a significant amount to maintain security for their employees and assets.” Thankfully for Pakistan’s neighbor, India has no such baggage. India’s oil Minister Hardeep Singh Puri has called for oil majors to step up oil and gas exploration in the country to help cut India’s reliance on imports and make affordable fuel sustainable. “E&P offers investment opportunities worth USD 100 billion by 2030,” he told a conference at Urja Varta. Currently, only 10% of India’s 3.36 million sq km wide sedimentary basin is under exploration. However, the country is richly endowed with fossil fuels: back in July, S&P Global Commodity Insights revealed that four largely unexplored sedimentary basins in India could hold up to 22 billion barrels of oil. In effect, lesser-known Category II and III basins, namely Mahanadi, Andaman Sea, Bengal, and Kerala-Konkan contain more oil than the Permian Basin, which has already produced 14 billion barrels of its 34 billion recoverable oil reserves. Rahul Chauhan, an upstream analyst at Commodity Insights, has emphasized the potential of India’s unexplored Oil & Gas sector, “ONGC and Oil India hold acreages in the Andaman waters under the Open Acreage Licensing Program (OALP) and have planned a few significant projects. However, India still awaits the entry of an international oil company with deepwater and ultra-deepwater exploration expertise to participate in current and upcoming OALP bidding rounds and explore these frontier regions,” he has declared. Big Oil Kicks Off India Exploration India boasts significant discoveries in the Krishna-Godavari, Barmer, and Assam basins, but exploration in other areas has been slower to develop. Of India’s 3.14 million square kilometers of sedimentary basins, 1.3 million sq km are in deep waters. India had its first foray into deepwater exploration in the Bay of Bengal earlier this year in the Krishna-Godavari Basin, courtesy of India’s state run Oil and Natural Gas Corporation (ONGC). ONGC said it was planning to spend over $10 billion developing multiple deepwater projects in its KG-DWN-98/2 block in that basin. Meanwhile, state-owned upstream company Oil India Ltd is looking to start exploration activities in Nagaland “We have a total of 30 blocks under the OALP. We have already drilled all wells under the awarded OALP blocks, except in Nagaland. We are pursuing the ministry and they have set up a high power committee involving OIL, ONGC, government officials, to discuss the issue with the Government of Nagaland and resume exploration,” the official said. Unlike Pakistan, India is likely to have little trouble attracting the oil and gas majors. Indeed, British energy giant BP Plc (NYSE:BP) is holding a board meeting in India this week, as it hunts for more opportunities in the country. BP has forged a joint venture with Indian multinational conglomerate Reliance Industries to operate 1,900 fuel retail stations across India and produces oil and gas from a deepwater block in the Krishna-Godavari basin. The JV has teamed up with ONGC to bid for exploration rights for an offshore block in India. National oil companies (NOCs) account for 58% of global reserves and 56% of production. However, International Oil Companies (IOCs) also play a major role in the energy sector by contributing to the general economic and social development of the host country. Indeed, IOCs are obliged through Production Sharing Agreement to pay royalty fees to the host country. Analysts have predicted that India is set to become the key driver of global oil demand growth, overtaking China. “China’s role as a global oil demand growth engine is fading fast,” Emma Richards, senior analyst at London-based Fitch Solutions Ltd, told The Times of India. According to the analyst, over the next decade, China’s share of emerging market oil demand growth will decline from nearly 50% to just 15% while India’s share will double to 24%. A rapidly growing population, which has likely surpassed China’s, is expected to be the main driver of consumption trends in India. Meanwhile, the country’s transition from traditional gasoline and diesel-fueled transport is expected to lag other regions, in sharp contrast to China’s skyrocketing adoption of electric vehicles and clean energy in general. “India was always going to exceed China in a matter of time in terms of being the global demand growth driver, mainly due to demographic factors like population growth,” Parsley Ong, the head of Asia energy and chemicals research at JPMorgan Chase & Co. in Hong Kong, has told Bloomberg.
Inox India and the LNG Boom
A few months ago, Hertz, a rental giant, was in news for dumping its EV fleet in favour of gas cars. The reason? The hidden costs of EV ownership. The move led to some correction in Tesla and another EV maker Polestar. Back in India, while the EV penetration is unfolding in two and three wheelers, lack of infra and cost related reasons have led to slow adoption in 4 wheelers and heavy-duty vehicles. As the future of electrification is being discussed amid subsidy related developments, a new fuel trend is about to emerge. For its long-haul trucks and heavy-duty vehicles, India is planning to use LNG. The target is to have a third of the fleet run on LNG instead of diesel in five to seven years. With this move, India plans to target pollution and cut dependence on diesel and increase the share of natural gas from 6% to 15% in the energy mix. Is this just another target or a real opportunity? Well, other countries give some confidence. While China has a fleet of over 800,000 LNG trucks on its roads, the number in the US and Europe is estimated to be 15,000. In comparison, India is still taking baby steps, with hardly 500 such trucks on the road. To be sure, at present, this is a bit of chicken and egg situation. A large-scale adoption needs infrastructure of LNG filling stations which is lacking. For LNG filling stations to be viable, there needs to be an LNG based fleet that can justify that investment (which isn’t there yet). To start with, the government is setting up first 50 LNG fuel stations along the Golden Quadrilateral. By 2030, the plan is to develop 1,000 such stations. This side of the supply chain will be catered by companies in the oil and gas sector – IOCL, BPCL, HPCL, GAIL, Petronet LNG, Gujarat Gas and their joint ventures/ subsidiaries.
India Looks to Balance Short-Term Energy Needs with Long-Term Vision
India’s growing energy needs are a complex puzzle, with pieces shaped by global politics, economic realities, and a pressing need for cleaner solutions. It’s a balancing act, with the country walking a tightrope between ensuring a reliable and affordable energy supply and pursuing a sustainable future. In a world where energy security is paramount, India isn’t shying away from securing the best deals, even if it meansturning to discounted Russian crude amidst Western sanctions. Yet, India’s energy story is about more than just securing the cheapest barrels, says Micheal Kern in Oilprice.com There’s a parallel narrative of ambition and aspiration, with the country setting bold renewable energy targets and envisioning a future where clean energy plays a leading role. It’s a delicate dance, juggling the immediate needs of a developing nation with the long-term vision of a sustainable and green future And global energy giants like BP aren’t just watching from the sidelines. They’re actively participating in this unfolding narrative. The company’s recent high-profile board meeting in India and its expanding collaborations across the energy spectrum – from traditional oil and gas exploration to investments in renewable energy and electric mobility – signal a clear intent: BP sees India as a crucial player in the global energy arena and is eager to contribute to its evolving story. This is about more than tapping into a lucrative market. BP’s approach in India reflects a broader understanding of the country’s complex energy landscape. It recognizes that India’s energy choices will have global repercussions and that collaboration and innovation are key to navigating this complex landscape. Of course, it’s not all smooth sailing. Some challenges BP and other international players will encounter are navigating regulatory hurdles, addressing infrastructure gaps, and adapting to shifting geopolitical dynamics. But the potential rewards are immense. India’s growing energy demand and commitment to a greener future presents a unique opportunity for companies willing to invest in the long term. India’s energy transformation is a story of balancing competing priorities – energy security, affordability, and sustainability. While the country’s reliance on cheaper Russian crude underscores its pragmatic approach to energy security, its commitment to a green transition remains unwavering. Global energy majors like BP are recognizing this dynamic landscape and aligning their strategies to contribute to India’s energy future. As India continues its journey towards a cleaner and more secure energy mix, the collaboration between international players and domestic stakeholders will be crucial. While challenges persist, the opportunities for growth and innovation in India’s energy market are immense, making it a focal point for the global energy industry in the years to come.
Petrol, diesel price cut before Maha elections? Oil Minister official says prices volatile
International oil prices continue to be extremely volatile, falling on one day and rising thereafter, a top oil ministry official said explaining the reason behind no reduction in petrol and diesel prices despite softening in input cost, but could not say if the rates will be cut before Maharashtra elections. Global oil benchmark Brent crude futures fell below USD 70 per barrel last week — the first time since December 2021 — but gained thereafter. Brent was trading at USD 74.58 per barrel on Thursday while West Texas Intermediate advanced to trade at USD 71.71. A decline in price of crude oil — which is converted into fuels like petrol and diesel at refineries — had rekindled hopes for a reduction in petrol and diesel rates that have been on a freeze for over two years now barring a pre-election reduction earlier this year. “Oil prices continue to be volatile. They fell one day last week to below USD 70 but rose the day after,” the official, speaking on condition of anonymity, told reporters here. Until such time that the oil prices stay volatile, the state-owned fuel retailers are unlikely to revert to daily revising rates in line with cost, he said. While petrol and diesel pricing is deregulated (meaning oil companies have freedom to fix retail rates), the state-owned fuel retailers, Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), have since late 2021 not revised prices in line with cost. They froze rates in April 2022 only to cut prices by Rs 2 per litre each just before general elections this year before again freezing the rates. Petrol costs Rs 94.72 per litre in the national capital and diesel comes for Rs 87.62 a litre. Asked if the oil companies will cut fuel prices ahead of the crucial assembly elections in Maharashtra, the ministry official said, “it is a good question but I can’t say (either ways).” Last week, Oil Secretary Pankaj Jain had stated that the oil companies will be taking appropriate decisions on reducing fuel prices if international oil prices were to settle lower on a sustained basis. Industry sources said the three state-owned fuel retailers are making good profits on petrol and diesel but want the trend to continue before deciding on a revision. “They don’t want a situation where they cut prices and are faced with a situation where international prices rise,” an official explained. Brokerage Emkay GLobal Financial Services in a note last week stated that it expects IOC, BPCL and HPCL to cut petrol and diesel prices before the November assembly elections in Maharashtra. “We believe there are expectations of a retail price cut in auto fuels for oil marketing companies (OMCs) amid the upcoming state elections. While we do not rule out the same, the model code of conduct for J&K and Haryana is on for a month. There could be a cut only toward Diwali and before Maharashtra election’s model code of conduct, which could be Rs 2 per litre each for petrol and diesel and possibly coupled with an equivalent increase in excise duty,” it had said. However, during the next month, OMCs can earn supernormal marketing margins, covering LPG under-recoveries and inventory losses to a large extent. “We estimate implied July-September gross marketing margins at Rs 9.7/8 per litre for petrol/diesel vs Rs 4.7/3.8 in Q1 (April-June) and a normative range of Rs 3.5-4 each,” it said. India imports 85 per cent of its oil needs and its fuel pricing is indexed to international rates. IOC, BPCL and HPCL had reported bumper profits totalling about Rs 81,000 crore in fiscal year ended March 31, 2024, which far exceeded their annual earnings of Rs 39,356 crore in pre-oil crisis years. The retailers have resisted calls to revert to daily price revision and pass on softening in rates to consumers on grounds that prices continue to be extremely volatile — rising on one day and falling on the other — and that they needed to recoup losses incurred in the year when they kept rates lower than cost. The three companies, which control roughly 90 per cent of India’s fuel market, have not ‘voluntarily’ changed petrol, diesel and cooking gas (LPG) prices for the past two years, resulting in losses when input cost was higher and profits when raw material prices were lower. The fuel price freeze that began on April 6, 2022, had a loss as high as Rs 17.4 a litre on petrol and Rs 27.7 per litre on diesel for the week ended June 24, 2022. However, subsequent softening led to losses being eliminated. And in mid-March, they cut petrol and diesel prices by Rs 2 per litre each just before general elections were announced. International oil prices have been turbulent in the last couple of years. It dipped into the negative zone at the start of the pandemic in 2020 and swung wildly in 2022 – climbing to a 14-year high of nearly USD 140 per barrel in March 2022 after Russia invaded Ukraine, before sliding on weaker demand from top importer China and worries of an economic contraction. But for a nation that is 85 per cent dependent on imports, the spike meant adding to already elevated levels of inflation and derailing the economic recovery from the pandemic. So the three fuel retailers froze petrol and diesel prices for the longest duration in the last two decades. They stopped daily price revision in early November 2021 when rates across the country hit an all-time high, prompting the government to roll back a part of the excise duty hike it had effected during the pandemic to take advantage of low oil prices. The freeze continued into 2022 but the war-led spike in international oil prices prompted a Rs 10 a litre hike in petrol and diesel prices from mid-March 2022 before another round of excise duty cut rolled back all of the Rs 13 a litre and Rs 16
India plans oil, gas exploration licensing round in early 2025, source says
India aims to launch an oil and gas exploration licensing round early next year, a source at the oil ministry told Reuters on Thursday.