Indian refiners using Russian insurance for oil above $60/bbl, govt source says
Indian refiners are using Russian insurance cover for Russian oil cargoes priced above $60 per barrel, a government source told Reuters on Thursday. The Group of Seven (G7), European Union and Australia imposed a price cap of $60 per barrel on Russian sea-borne crude exports aiming to limit Russia’s oil revenue following its invasion of Ukraine. Russian firms provided insurance cover for 60% of Moscow’s oil cargoes to India in July, up from 40% in December last year, according to Reuters calculations based on the vessels’ documents. By using Russian insurers, Moscow can sell the oil above a $60 per barrel price cap that the Group of Seven (G7), the European Union and Australia imposed aiming to limit Russia’s oil revenue following its invasion of Ukraine. Over 60% of Russia’s seaborne oil exports go to India. Western services such as shipping and insurance can only be used for Russian cargoes sold at or below the price cap. Russian companies providing the insurance for exports to India in July included Ingosstrakh, Rosgosstrakh, Alfastrakhovanie and VSK Insurance. Prior to the Ukraine war, shippers mainly used large western insurers for protection and indemnity (P&I) cover. Earlier this year, India extended approval to several Russian insurers for providing marine cover to tankers after state-run Russian National Reinsurance Company provided a financial guarantee. In July, India overtook China to become the top buyer of Russian oil, even with China receiving pipeline and seaborne deliveries. For seaborne cargoes alone, India has been the largest market for Russian oil since an EU embargo on Moscow’s oil took effect in 2022. Russia’s leading insurer Ingosstrakh was the largest insurance provider for tankers carrying Russian oil to India in July, the data showed. Ingosstrakh said in an email response to Reuters that its “relations with India are long-term – the company has been present on this market since 1967”, adding that it was not able to assess its share or a share of Russian insurance of oil tankers supplying to India. Ingosstrakh also said that its entire shipping P&I portfolio accounts for less than 1% of its total premiums. Rosgosstrakh declined to comment. Alfastrakhovanie and VSK Insurance did not reply to Reuters’ requests for comments. Insurance cover for the remaining 40% of tankers that shipped oil to India in July was provided by western companies. Russian insurance companies are mostly used by oil shippers with strong links to Russia, such as Russian shipping company Sovcomflot. Shipping firms based in countries such as Greece, the United Arab Emirates and China more often use western insurance when transporting Russian oil, the data shows. While many western insurers withdrew from covering Russian oil shipments for fear of breaching the G7 price cap, some still provide cover.
Oil Prices Resume Post-Cut Rally Despite Demand Doubts
Crude oil prices were climbing on Thursday morning following the Fed’s announcement of a 0.5% cut in interest rates on Wednesday. The announcement pushed prices up for a short while on Tuesday but the rise quickly fizzled out as it sparked worry about the state of the U.S. economy. Later in the day prices began to climb higher again, and early on Wednesday morning that trend was continuing. “While the 50 basis point cut hints at harsh economic headwinds ahead, bearish investors were left unsatisfied after the Fed raised the medium-term outlook for rates,” ANZ analysts said, as quoted by Reuters. “Crude’s buoyancy earlier this week was from expectations of a bumper Fed rate cut,” Vandana Hari, founder of Vanda Insights, told Bloomberg. “Now that it has been delivered, attention is likely to return to oil market fundamentals, which are weak.” Pessimism about Chinese demand appears to have remained strong and even indications that the war in the Middle East could expand, potentially leading to the involvement of Iran, failed to move the benchmarks up. Earlier in the week, the news broke that thousands of pagers used by Hezbollah fighters had exploded in Lebanon. Today, more explosive news came from the country, this time with walkie-talkies and solar equipment. The AP cited Lebanon’s health ministry as saying that this second wave of explosions has killed at least 20 people and wounded more than 450. “We are at the start of a new phase in the war — it requires courage, determination and perseverance,” Israeli Defense Minister Yoav Gallant said, adding words of praise for the country’s army and security service, noting that “the results are very impressive,” without specifying the nature of those results. This geopolitical uncertainty does seem to have boosted bullish sentiment, with some analysts now believing the recent bearishness in markets to have been “overdone”. Citi, meanwhile, had good news about China, forecasting a rebound in oil prices driven by higher refinery run rates in the final quarter of the year. According to the bank, the increase in run rates could add 300,000 bpd to Chinese demand.
Government Removes Windfall Tax On Crude Petroleum
The Centre on Tuesday, slashed windfall tax on domestically produced crude oil to zero, according to a government notification. This marks the second instance when the tax is scraped to zero since the tax’s implementation. The earlier cut was announced on April 4, 2023. The government reviews and revises the tax on a fortnightly basis. The last such revision took place on August 31 when the windfall tax on crude petroleum was reduced to Rs 1,850 per tonne from Rs 2,100 per tonne. Prior to that, the government revised the windfall gains tax on petroleum products on August 17, lowering it to Rs 2,100 per tonne from Rs 2,400 per tonne.
Declining shipments of petroleum products hurting India’s overall export figures
A substantial decline in shipments of petroleum products is one of the key reasons behind the moderating exports globally, including in India which exports refined products to various countries. Commerce Secretary Sunil Barthwal agreed that export was a “huge challenge”. “Look at global trade data, there has been a decline of imports by many countries, almost by 5 per cent to 6 per cent negative growth. It shows that there is a slowdown in China. There is still recession fears, which is persisting in Europe and the US.” “There are a lot of challenges in trade, but I’m very happy to see in terms of figures, so far, in cumulative terms, we have been able to manage our exports in the positive territory,” the secretary told reporters on Tuesday. India’s petroleum exports have plummeted by a staggering 37.56 per cent, dropping from USD 9.54 billion in August 2023 to just USD 5.95 billion in August 2024. This dramatic decline has significantly impacted India’s overall merchandise trade, leading to a 9.33 per cent reduction in August 2024 compared to the previous year. Over the past month, international crude oil prices have slipped by over USD 10 per barrel to about USD 70 per barrel, due to subdued demand. Ajay Srivastava, the founder of the Global Trade Research Initiative (GTRI) in an interesting anecdote noted that crude oil prices remained relatively stable between these two periods, suggesting that the drop in petroleum product exports is linked to ongoing disruptions in the Red Sea.
Russian insurance shores up oil exports to top buyer India
Russian insurers are playing a growing role facilitating the country’s oil shipments to India, its biggest buyer, data obtained from trade and shipping sources shows, helping to protect Moscow’s export revenue despite western sanctions. Russian firms provided insurance cover for 60% of Moscow’s oil cargoes to India in July, up from 40% in December last year, according to Reuters calculations based on the vessels’ documents. By using Russian insurers, Moscow can sell the oil above a $60 per barrel price cap that the Group of Seven (G7), the European Union and Australia imposed aiming to limit Russia’s oil revenue following its invasion of Ukraine. Western services such as shipping and insurance can only be used for Russian cargoes sold at or below the price cap. Russian companies providing the insurance for exports to India in July included Ingosstrakh, Rosgosstrakh, Alfastrakhovanie and VSK Insurance. Prior to the Ukraine war, shippers mainly used large western insurers for protection and indemnity (P&I) cover. Earlier this year, India extended approval to several Russian insurers for providing marine cover to tankers after state-run Russian National Reinsurance Company provided a financial guarantee. In July, India overtook China to become the top buyer of Russian oil, even with China receiving pipeline and seaborne deliveries. For seaborne cargoes alone, India has been the largest market for Russian oil since an EU embargo on Moscow’s oil took effect in 2022. Russia’s leading insurer Ingosstrakh was the largest insurance provider for tankers carrying Russian oil to India in July, the data showed. Ingosstrakh said in an email response to Reuters that its “relations with India are long-term – the company has been present on this market since 1967”, adding that it was not able to assess its share or a share of Russian insurance of oil tankers supplying to India. Ingosstrakh also said that its entire shipping P&I portfolio accounts for less than 1% of its total premiums. Rosgosstrakh declined to comment. Alfastrakhovanie and VSK Insurance did not reply to Reuters’ requests for comments. Insurance cover for the remaining 40% of tankers that shipped oil to India in July was provided by western companies. Russian insurance companies are mostly used by oil shippers with strong links to Russia, such as Russian shipping company Sovcomflot. Shipping firms based in countries such as Greece, the United Arab Emirates and China more often use western insurance when transporting Russian oil, the data shows. While many western insurers withdrew from covering Russian oil shipments for fear of breaching the G7 price cap, some still provide cover.
Italy Shuts the Door on New Oil Exploration
Itay will no longer grant concessions for oil and condensate exploration and production, a draft of a new government decree shows. The decree, seen by Reuters, specifies that the oil exploration and production ban will only apply to new concessions—not existing ones that have already secured government approval. The ban is part of Italy’s green ambitions, which include abandoning coal-fired electricity by the end of 2025 in favor of gas-fired power plants. To that end, Italy approved four new gas-fired power plants in the past few years, capable of producing 3,400 MW of power, with upgrades to existing power plants expected to add another 700 MW by 2026 as the country attempts to move entirely away from Russian-supplied natural gas. Oil exploration and production in Italy is regulated primarily through state legislation, with operators holding no title to exploration and production areas. The Italian government is due a 10% royalty for onshore oil production and 7% for offshore. While taking a step back from oil and gas exploration and production, Italy’s Central Bank is pushing for developed economies with higher per-capital emissions to help developing economies transition away from fossil fuels in hopes of accelerating the clean energy rollout. The call to assist, made by bank governor Fabio Panetta at the G7 – IEA Ensuring an Orderly Energy Transition conference in Rome, would help to reduce the overall cost of the energy transition globally, Panetta said. But last week, Italy’s power utility Enel scrapped its plans to participate in the energy transition of Vietnam, deciding to exit the country’s wind and solar markets, which have been categorized by a rather complicated grid connection mechanism that has prompted even a transition-eager Italy is unwilling to tackle.
India Set to Account for 35% of Global Energy Demand Growth in Coming Decades
India will drive up to 35% of global energy demand growth over the next 20 years, petroleum minister Hardeep Puri said at the Gastech conference that started on Tuesday in Houston. “If you say that global demand is increasing by one percent, ours is increasing by three times that,” Puri said. “In the next two decades, 35% of the increase in global demand will come from India.” At the same time, the official said that India wants to succeed with the energy transition as well. “We will manage and succeed…on the green transition,” Puri said. “That’s the part with which I am most satisfied.” India is already one of the biggest drivers of energy demand growth and a top energy importer. Earlier this year, the U.S. Energy Information Administration forecast that the country’s industrial expansion and energy demand was going to drive a threefold increase in natural gas demand. In 2022, India’s natural gas consumption amounted to 7.0 billion cubic feet per day, with over 70% of the demand coming from the industrial sector. By 2050, India’s natural gas consumption is set to more than triple to 23.2 Bcf/d, according to EIA’s estimates. Oil demand on the subcontinent is also on the rise, which has prompted plans to boost refining capacity significantly. At the end of last year, the country’s petroleum ministry announced plans to expand refining capacity by 1.12 million bpd every year until 2028. Total Indian refining capacity is expected to increase by 22% in five years from the current 254 million metric tons per year, which is equal to around 5.8 million bpd, according to these plans. Yet India is also eager to take part in the energy transition. It already has ambitious targets, seeing 500 gigawatts of renewables capacity installed by 2030, compared to around 153 GW capacity now. Earlier this month, Renewable Energy Minister Pralhad Joshi said that a number of banks had pledged a total of $386 billion in investment commitments to help India boost its renewable energy industry.
India Will Continue to Buy Cheap Russian Crude Oil
India will not change its energy policy to buy oil and gas at the lowest possible price and will continue to purchase cheaper Russian crude supply, Indian Oil Minister Hardeep Singh Puri told Reuters at the Gastech conference in Houston. “If an entity is not under sanctions, there is no question I will buy from the cheapest supplier,” the minister said. The world’s third-largest crude oil importer, India, relies on imports to cover more than 85% of its petroleum consumption, which is growing in lockstep with economy and refinery expansion plans. Over the past two years, India has become a key buyer of Russia’s oil, which is selling at a discount because of the sanctions and embargoes on Russian crude exports to Western countries. The attractiveness of cheaper crude supply has made Russia the single biggest supplier of oil to India. In July, India even topped China to become the biggest buyer of Russian crude oil, as Chinese refiners lowered purchases amid falling refining margins and tepid fuel demand. A record 44% of India’s total imports in July came from Russia, according to data from industry and trade sources compiled by Reuters. India’s imports from Russia hit a record 2.07 million barrels per day (bpd) in July, up by 4.2% from June and up 12% from the same month a year earlier. India has snapped up a large part of Russian spot supply over the past two years, but it is now looking to sign long-term supply deals. Indian state-held refiners have started jointly to discuss terms of a potential deal with Russia for long-term supply of Russian oil, a government source with knowledge of the matter told Reuters in July. India needs “predictable and stable” oil supplies amid expanding refining capacity, the source added. India expects to boost its refining capacity by around one-fifth to have 6.19 million bpd of crude processing capacity by 2028, according to its junior petroleum minister.
Natural Gas Executives Clash With U.S. Officials Over Biden’s Energy Policies
The Biden Administration is undermining U.S. energy security and global climate efforts by seeking to halt LNG export permitting and lacking a cohesive policy to help allies in need of American energy, executives at some of the biggest U.S. oil and gas companies said at the Gastech conference in Houston. The U.S. Administration paused new LNG export capacity permits in late January, under pressure from climate activists. Those claimed that LNG was even worse for the environment than coal and any new export capacity would aggravate what they see as an already grave situation with the earth’s climate. In July, a Louisiana federal judge blocked President Biden’s pause on new LNG export capacity approvals, ruling in favor of 16 states that sued the federal government for the pause. Yet, the pause in LNG permitting has enraged the industry, which criticized the Administration’s policies at the ongoing Houston conference. “Instead of imposing a moratorium on LNG exports, the administration should stop the attacks on natural gas,” Chevron’s CEO Mike Wirth said at the event. “When it comes to advancing economic prosperity, energy security and environmental protection, an LNG permitting pause fails on all three,” he added. ConocoPhillips chief executive Ryan Lance noted the slow pace of project approvals, commenting “We absolutely need permitting reform, and we need more infrastructure.” At Gastech, the U.S. executives also pointed out that natural gas would be critical to support the surge of AI and data centers. “AI’s advance will depend not only on the design labs of Silicon Valley, but also on the gas fields of the Permian basin,” Chevron’s Wirth said. As the AI boom is driving a significant increase in demand for electricity in the United States, natural gas-fired power generation is on the rise to meet higher consumption. In response to the attacks, Brad Crabtree, an assistant secretary for fossil energy and carbon management at the U.S. Department of Energy, pointed out that the administration’s Infrastructure Bill has made billions of dollars available for new energy projects.
Asian Markets Are Backbone of Success for Canada’s New Oil Pipeline
Fresh data coming in has revealed that Canada’s newly expanded Trans Mountain pipeline (aka TMX) is indeed delivering on its promise to diversify the country’s crude oil markets. According to data from Vortexa via Bloomberg, Canadian oil producers have shipped about 28 million more barrels of crude off the country’s west coast since the expanded Trans Mountain pipeline kicked off operations in June compared to the corresponding period in 2023. Meanwhile, shipments from the U.S. Gulf declined by 1.68 million barrels over the timeframe. This encouraging trend proves that TMX is working as intended by lowering the Canadian oil industry’s reliance on US-bound pipelines and American refiners, which forced Canadian producers to accept deeper discounts for their crude as well as leaving them exposed to oil price shocks. As expected, the vast majority of the TMX crude is headed for the Asian market with nearly two-thirds going to China, India, South Korea and Brunei, with the remainder going to U.S. refiners. China has emerged as TMX’s biggest customer, purchasing 8.24 million more barrels of Canadian crude since June. That figure marks a 11.6 million increase in volume of barrels shipped off Canada’s west coast, along with a reduction of 3.35 million barrels via the Gulf. South Korea was the second biggest buyer, purchasing 3.91 million more barrels via Canada’s west coast, while India took 1.53 million more barrels. Chinese private refiner Rongsheng Petrochemical purchased two Canadian Access Western Blend (AWB) crude cargoes from ConocoPhillips (NYSE:COP) and Vitol on top of another two AWB cargoes it bought via a tender. Cold Lake and AWB are heavy sour crude containing 3.5-4% sulfur and with API gravity of 21-22 degrees. South Korean refiner GS Caltex split a 550,000-barrel Cold Lake crude cargo with Japan’s top refiner ENEOS, with GS Caltex taking 300,000 barrels while ENEOS will get 250,000 barrels. South Korea’s top refiner SK Energy, a unit of SK Innovation, bought a 550,00-barrel cargo from Unipec while Hengyi Petrochemical, a refinery operator in Brunei, also purchased a similar volume of crude from PetroChina Co (OTCPK:PCCYF). All the cargoes were sold at discounts of between $5 and $6 a barrel to ICE Brent. The expanded TMX pipeline will triple the flow of crude from landlocked Alberta to Canada’s Pacific coast to 890,000 barrels per day (bpd). TMX provides Asian refiners an opportunity to diversify their imports while also giving Canadian producers more access to U.S. West Coast and Asian markets. TMX crude exports are expected to clock in at ~350,000-400,000 bpd, and will compete with heavy grades from Latin America and the Middle East. According to Muyu Xu, a senior crude oil analyst at analytics firm Kpler, Cold Lake crude is about $10 per barrel cheaper than Iraq’s Basra Heavy for deliveries to China. “Canada’s TMX crude attracts interest from Asian buyers who are keen to secure cheap supplies of heavy grades but do not have access to U.S.-sanctioned Venezuelan crude,” XU told Reuters. “It will still take some time for refiners to experiment with and test TMX crude as the first few cargoes have just arrived,” she added. U.S. Gulf Coast Still Important That said, the U.S. Gulf Coast is likely to continue seeing brisk business in the near future. According to Vortexa analyst Rohit Rathod, the Gulf Coast’s biggest attraction remains the ease of loading very large crude carriers (VLCCs), which can carry up to 2 million barrels of oil, a feature that has helped maintain high levels of Canadian exports from the U.S. Gulf Coast. For instance, India’s Reliance Industries shipped 2 million barrels of Canadian crude via a VLCC in May from Vancouver to its refinery in Jamnagar. In comparison, smaller Aframaxes that typically carry up to 800,000 barrels are limited to loading only about 550,000 barrels at Vancouver due to port draft restrictions. In other news, the Canadian government is seeking to privatize TMX. Trans Mountain Corp., owner of TMX, is arranging a bond sale to refinance part of its debt ahead of the Canadian government’s eventual sale of the oil pipeline operator. The company had C$25.3 billion ($18.4 billion) debt as of March 31, including credit agreements with a syndicate of lenders containing two facilities totaling C$19 billion. The Canadian government bought and nationalized the original pipeline from a unit of Kinder Morgan Inc. (NYSE:KMI) in 2018 to ensure that the expansion would be built. In effect, the federal government acquired its corporate owner Trans Mountain, which became a federal Crown corporation with Ottawa framing this decision around the desire to secure a key Canadian asset. TMX ended up witnessing massive cost overruns, with the project costing C$34 billion, more than six times the original estimate.