Why Oil May Regain Upward Momentum
Dynamics in the global oil markets have shown little change over the past couple of weeks with pessimism still high and hedge funds still leaning towards the short side of the market. Over the past week, Brent prices remained range-bound in the $83.45-83.60/bbl range with the prolonged sideways price movement pushing volatility lower. The realized annualized 30-trading-day front-month Brent volatility clocked in at just 16.9% at settlement on 20 May, a 2.1 ppt w/w reduction while the 10-trading-day volatility measure came in 7.4 ppt w/w lower at just 12.5%. Front-month Brent settled at $83.71/bbl on 20 May, good for a 0.35/bbl w/w increase but considerably lower than the $1.44/bbl increase predicted by Standard Chartered’s machine-learning oil price modeling tool, SCORPIO. Oil markets continue to be lackluster compared with the strength displayed by metals and gas markets. StanChart has predicted that the bearish sentiment coupled with low market volatility are likely to persist until OPEC+ announces its new policy during its next meeting scheduled for early June. However, StanChart notes that the exact timing of that unilateral announcement is uncertain because voluntary cuts are outside the scope of the OPEC+ ministerial meeting. The experts have predicted that positive developments by OPEC+ could trigger another oil price rally. In contrast to oil markets, natural gas markets have turned much more positive in recent weeks thanks in large part to improved supply/demand balances. Henry Hub gas prices are up 55.2% over the past 30 days to $2.78/MMBtu while TFF gas has jumped 42.0% from its February lows to change hands at €34.6/MWh. An early heatwave in Texas has helped make U.S. natural gas the strongest of the major commodities for a second successive week while the positive sentiment in Europe’s gas markets is being driven by concerns about prolonged maintenance outages in Norway, with the Troll field and Kollsnes processing plant still offline. Pipeline gas supplies to Europe hit a low of 178.9 mcm/day on Tuesday, the lowest since September while the previously huge inventory buildup has slowed down. The latest data by Gas Infrastructure Europe (GIE) shows that EU gas inventories stood at 77.88 billion cubic meters (bcm), good for a 2.11 bcm y/y increase. However, it’s important to note that whereas inventories are still 16.83 bcm above the five-year average, that surplus is being steadily eroded, having fallen on 32 of the past 34 days for a cumulative decrease of 5.5 bcm over the timeframe. Last week, the continent’s gas inventories increased by 2.28 bcm,lagging the 2.61 bcm increase over the same period last year and the five-year averageof 2.67 bcm. The muted pace of inventory increases coupled with evidence of strong LNG demand in Asia have been supporting the ongoing natural gas rally. However, it’s going to be interesting to see if the gas rally will hold, with predictions that Europe’s gas flows will gradually return to normal by the end of May. Meanwhile, warmer weather forecast until the end of May has dampened gas demand, resulting in European gas storage facilities surpassing 67% capacity. Energy Stocks Giving Up Gains The end of the early-year oil price rally has forced energy stocks to give up some gains. The sector has lost 5% over the past six weeks bringing its gains in the year-to-date to 11.46%, slightly below the 11.56% return by the S&P 500. The energy sector has slipped several spots in sector rankings and is now the 5th best-performing sector behind Communication Services (21.32%), Information Technology (16.60%), Utilities(14.51%) and Financials (11.80%). Only the Real Estate sector is in the red with a -4.21% return so far in the current year. That said, Wall Street largely remains bullish on oil and gas stocks. A week ago, Oppenheimer Asset Management revealed it holds a favorable outlook on the equities market, especially the Energy and Consumer Discretionary sector. “We remain positive on equities” as “92% (459 firms) of the companies in the S&P 500 index having reported Q1 results, earnings are exceeding expectations. Profits are up 5.5% overall on the back of 3.8% revenue growth,” Oppenheimer stated in an investor note. “Eight of the 11 sectors are showing positive earnings growth, with six up at double digit rates. These include communication services (+42%), consumer discretionary (+39%), utilities (+31%), information technology (+14%), financials (+11%) and real estate (+11%),” the investment firm added. Despite posting another disappointing earnings season, Oppenheimer has indicated that Energy likely has further upside though not necessarily in a straight line. Meanwhile, we recently highlighted that oil and gas stocks are likely to continue outperforming the market regardless of whether Biden or Trump ascends into the Oval Office come 2025, though clean energy investments could face considerable risk if Trump wins.
Oil India signs agreement with NRL for transportation of additional petroleum productsthrough NSPL
Oil India Limited (OIL), India’s oldest Oil & gas Company and Numaligarh Refinery Limited (NRL), OIL’s material subsidiary company on Wednesday signed a new long-term Definitive Agreement for the transportation of additional petroleum products through OIL’s Numaligarh-Siliguri Product Pipeline (NSPL) following the commissioning of Numaligarh Refinery Expansion Project. The Agreement will be effective from the date of commencement of augmented pipeline operations for a period of 25 years. Currently, OIL evacuates 1.72 MMTPA of petroleum products through NSPL, delivering to the Marketing Terminal of NRL at Siliguri. Since its commissioning in 2008-09, the NSPL has served as the lifeline for evacuating products from NRL’s Refinery to Siliguri Marketing Terminal for onward distribution to various demand centres in eastern and northern India. In line with Hydrocarbon Vision 2030 for Northeast India, NRL is executing Numaligarh Refinery Expansion Project to enhance capacity from 3 to 9 MMTPA. To evacuate NRL’s additional petroleum products through existing NSPL, OIL & NRL entered into an MOU in December 2020 under which, OIL agreed to invest for augmenting the capacity of the NSPL from 1.72 MMTPA to 5.50 MMTPA by way of establishing additional booster pump stations and other facilities at different pump stations along its right of way. Dr Ranjit Rath, CMD, OIL & Chairman NRL lauded the efforts of both Companies in framing the Definitive Agreement, “which will go a long way in the transportation of petroleum products to Siliguri & beyond, thus fuelling the growth trajectories of energy availability in the days to come,” according to an exchanges release.
New U.S. LNG Export Projects Risk Delays Due to Stricter Pollution Rules
New U.S. LNG projects risk delays amid the Biden Administration’s push for lower emissions and the ongoing reviews about the environmental impact of the planned export facilities. After President Joe Biden halted new LNG project approvals in January for a review of the current permitting process, the U.S. Administration is looking to implement stricter rules on pollution the export facilities are allowed to emit in the community. These new requirements are holding back projects, one being Venture Global’s CP2 LNG in Louisiana, and the company’s second such project in Cameron Parish, Louisiana. Last week, the Federal Energy Regulatory Commission (FERC) asked Venture Global to provide more details to prove its emissions would be below the stricter threshold. Venture Global criticized FERC’s move as an “eleventh hour data request” that would “encourage further baseless claims,” the company said in a letter to the regulator seen by the Financial Times. Venture Global says its project is in line with standards and has filed new information with FERC. Cheniere Energy, the top U.S. LNG exporter, also has projects that need approvals. Cheniere is working closely with FERC to progress the permitting approval process for trains 8 and 9 at Corpus Christi, CEO Jack Fusco said on the Q1 earnings call earlier this month. “We expect to receive our environmental assessment soon and remain confident that we will receive all necessary regulatory approvals to be able to sanction the project in 2025,” Fusco said. The halt of new LNG project approvals has been criticized by the U.S. oil and gas industry while environmentalists are pressuring the Administration to reject new project approvals. “We trust that when the government reviews the climate and environmental justice harms, they will fully reject all LNG export projects, because anything less would reveal this pause to be nothing more than a strategic and self-serving PR campaign,” Candice Fortin, 350.org US Campaign Manager, said. Charlie Riedl, Executive Director at the Center for LNG (CLNG), responded to the halt in permits saying “This is a short-sighted and damaging action that weakens U.S. relations with our allies. It undermines U.S. energy leadership in the world without any benefit to our shared climate goals and with considerable risk to the U.S. economy by endangering future projects and the jobs associated with them, as well as destabilizing international energy markets.”
Amlekhgunj-Lothar petroleum pipeline set for extension
The work of extending the petroleum pipeline from Amlekhgunj in Bara to Lothar in Chitwan will start soon. According to Nepal Oil Corporation, after the completion of the Motihari-Amlekhgunj pipeline, it will be extended to Lothar. Binitmani Upadhyay, head of Amlekhgunj, Madhesh regional office of the Corporation, said that a technical team is studying to start the pipeline work on Amlekhganj-Lothar 69 km. “Studies are being conducted by high-level technical teams from both Nepal and India,” he said, “Work will start after receiving the report of the teams.” One hundred thousand liters of petroleum products will be stored in Lothar by extending the pipeline. More than 70 percent of the second phase of the Motihari-Amlekhgunj pipeline project has been completed. According to Upadhyay, in the second phase, Indian Oil Corporation has installed two ‘petrol tanks’ of 4,100 kiloliters capacity, two ‘transmix tanks’ of 250 kiloliters capacity, 24 fully automatic ‘loading way-refillers’, ‘pump house’ and laboratory at the depot at Amlekhgunj in Bara. An agreement has been reached with the Indian Oil Corporation to build two transmix tanks for storing mixed fuel, which can be both petrol and diesel, and a firewater tank with a capacity of 3,000 kiloliters for security inside the depot. Although it is possible to import petrol and kerosene through the same pipeline, due to the lack of storage capacity, petroleum products have to be brought by tankers. When petroleum products are imported through pipelines, the technical loss will be zero, transportation costs will be avoided and environmental pollution will be reduced.
India greenlights massive green hydrogen and electrolyser production projects
India has taken a significant step in green energy by awarding tenders for 412,000 tonnes of green hydrogen production and 1.5 GW of electrolyser manufacturing, according to the Ministry of New & Renewable Energy (MNRE). Speaking at the World Hydrogen Summit 2024 in the Netherlands, MNRE Secretary Bhupinder S Bhalla highlighted India’s progress under the Strategic Interventions for Green Hydrogen Transition (SIGHT) program. He emphasised India’s advantages as a green hydrogen producer, particularly due to its low-cost renewable energy sources. Launched last year, the National Green Hydrogen Mission aims to establish a robust electrolyser manufacturing base and green hydrogen production facilities. Under SIGHT’s Component 1, the MNRE has allocated ₹44.40 billion for electrolyser manufacturing from FY26 to FY30. Component 2 includes ₹130.50 billion for green hydrogen production during the same period. The total financial incentive under SIGHT is ₹174.90 billion. The Solar Energy Corporation of India (SECI) will implement these projects, aiming to make India a global hub for green hydrogen production, usage, and export. The mission targets 5 million tonnes of annual green hydrogen production and 125 GW of associated renewable energy capacity, significantly reducing fossil fuel imports and CO2 emissions. By 2030, India expects to avert nearly 50 million tonnes of CO2 emissions and reduce ₹1000 billion in fossil fuel imports. In August 2023, the government set standards for green hydrogen production, ensuring it is derived from renewable energy with minimal carbon emissions.
Hydrogen-enriched CNG may come to India soon
Fossil-fuel powered vehicles are seen as a major culprit for air pollution despite its small contribution. The whole world is already undergoing a complete overall due to COVID and some new changes may be seen in the transport sector in India soon. The current BS6 emission norms were tough to comply by and now the government is thinking of one step ahead. EVs are still in their budding stage in terms of charging infrastructure so they want to modify the already successful alternative, the CNG. Find everything below about Hydrogen enriched CNG India also known as HCNG. What has the department told? The Ministry of Road Transport and Highways of India has issued a new draft. The new draft requires suggestion on the inclusion of HCNG. HCNG is also known as hydrogen-enriched CNG. If the draft receives positive feedback it could lead to an amendment to the Central Motor Vehicle Rules 1979. CNG is already better than any other fossil fuel-powered car. The fuel is available cheaply as well is more environmentally friendly. Thanks to the Indian Government CNG infrastructure is quite good in the Indian market. No official price details are available for HCNG as of now. HCNG, however, has undergone testing and initial results show lower emissions compared to CNG. Scientifically speaking HCNG produces lower CO (Carbon Monoxide), methane and THC (Total hydrocarbon emissions). The test results also showcase that HCNG is better than any other fossil fuel in terms of fuel consumption. Cost is a major deciding factor and reports suggest that it will be meagre. HCNG can be easily installed into CNG pipelines and bus depots. Test phase of this new fuel may take place in Delhi due to its better CNG infrastructure. First 50 busses fitted with HCNG kit will be tested for practicality.
IOCL exports premium fuel to Sri Lanka
Indian Oil Corporation Ltd. (IOCL) on Saturday exported its first-ever consignment of 100 octane premium fuel, XP100 to Sri Lanka. The product is tailored for premium high-end vehicles. Flagging off the shipment at the Jawaharlal Nehru Port Trust in Mumbai, V. Satish Kumar, Director (Marketing), Indian Oil said this was the third time the Company was taking a product offshore, showcasing its potential to send quality products from India to the world. “This marks a momentous occasion as another one of our products moves out to conquer new markets in Sri Lanka,” he said. Sujoy Choudhary, Director (Planning & Business Development) and Chairman Lanka IOC, said, “This is a historic day as we flag off our premium product XP100 to Sri Lanka. We have drawn up comprehensive promotional schemes to ensure this product gets wider visibility and acceptability.” The XP100 is domestically developed, leveraging IndianOil’s indigenous Octamax Technology. Designed with anti-knock properties, it is engineered to enhance engine performance, faster acceleration, smoother drivability and improved fuel economy. The formulation is said to reduce engine deposits and emissions in high compression ratio engines, optimising vehicle performance and longevity while minimizing maintenance. It is also eco-friendly fuel with significantly reduced tailpipe emissions, said a press release here.
As Russian discounts fall, Indian state and private refiners join hands to negotiate better terms
With discounts on Russian crude oil dwindling, India, in a first such effort, has brought together state-owned and private oil refiners to jointly negotiate for higher discounts and better terms with Russian suppliers, including Russia’s largest oil company Rosneft PJSC. The government-led joint sourcing strategy involves leveraging India’s position as the world’s third-largest crude oil buyer to get better discounts on Russian oil, which have dropped to about $3 per barrel from a high of $10 earlier, said two people aware of the development.
Russia Discovers Massive Oil and Gas Reserves in British Antarctic Territory
Russia has found huge oil and gas reserves in British Antarctic territory, potentially leading to drilling in the protected region. The reserves uncovered contain around 511bn barrels worth of oil, equating to around 10 times the North Sea’s output over the last 50 years. The discovery, per Russian research ships, was revealed in evidence submitted to the Commons Environment Audit Committee last week. The committee was assessing questions regarding oil and gas research on ships owned by the Kremlin’s Rosgeo, the largest geological exploration company in Russia. Antarctica is currently protected by the 1959 Antarctic Treaty, which prohibits all oil developments in the area. It was set up to ensure the region was used “exclusively for peaceful purposes” and would “not become the scene or object of international discord.” The committee heard from minister David Rutley, who assured MPs Russia was conducting scientific research in the region. “Russia has recently reaffirmed its commitment to the key elements of the treaty,” he said. But Klaus Dodds, a professor of geopolitics at Royal Holloway University, argued the Antarctic policy environment was “arguably at its most challenging since the late 1980s and early 1990s.” Russia’s invasion of Ukraine has created “widespread concern that a worsening relationship with the country will spark strategic competition and make it even more explicit in Antarctica.” He believes Russian activity in the region equated to hunting for oil and gas as opposed to scientific research. “Russia’s activities need to be understood as a decision to undermine the norms associated with seismic survey research, and ultimately a precursor for forthcoming resource extraction,” Dodds said in comments reported by the Telegraph. The Antarctic Treaty is the largest of Britain’s 14 overseas territories but it has faced competition claims from Argentina and Chile in the past. The Foreign, Commonwealth and Development Office said: “Russia has repeatedly assured the Antarctic Treaty Consultative Meeting that these activities are for scientific purposes.”
Saudis Fear Overheating Economy Could Slow Diversification from Oil
The world’s largest crude oil exporter, Saudi Arabia, is looking to prevent its economy from overheating and driving inflation higher as it aims to boost growth in its non-oil sector. Allowing more time to implement the massive investment projects under the Vision 2030 plan to diversify the oil-dependent economy could be a wise move, Saudi Finance Minister Mohammed Al-Jadaan said this week. “If you don’t allow your economy to catch up with your projects, basically what will happen is you’ll import a lot more,” the minister said at the Qatar Economic Forum in Doha on Tuesday, as carried by Bloomberg. The Kingdom has to be careful not to reach the point where the economy will hit the limits of its capacity to meet demand from the government and individuals, Al-Jadaan said. This point, commonly referred to as an overheated economy, leads to high inflation and leakage. In economics, one example of leakage is higher volumes of imported goods because they transfer income earned in one country to another country. If Saudi Arabia doesn’t allow its economy to catch up with its billions-dollar-priced huge investment projects, it may end up lacking the manufacturing and other capacity to support its plans, Al-Jadaan noted. “So giving it more time is actually wise,” he said at the Qatar Economic Forum, Powered by Bloomberg. “It’s not actually the funding that is the constraint,” the minister added. “It’s actually the economic leakage.” Some Vision 2030 Projects Could Be Delayed Saudi Arabia has started to admit in recent months that it would prioritize some projects that are part of Crown Prince Mohammed bin Salman’s Vision 2030 plan while possibly delaying others. At the end of last year, Saudi Arabia acknowledged for the first time that some of the projects of its Vision 2030 plan to diversify its economy away from oil are being delayed to avoid pressures on the economy. The Kingdom needs more time to “build factories, build even sufficient human resources,” minister Al-Jadaan said in December. “The delay or rather the extension of some projects will serve the economy,” he told Bloomberg at the time. “There are strategies that have been postponed and there are strategies that will be financed after 2030,” Al-Jadaan told Bloomberg without specifying which projects are being delayed. The Crown Prince “might be finally ready to have some tough conversations” about which projects could be accelerated and which can wait to be developed, a source familiar with the thinking of Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, told the Financial Times this month. Conservative Oil Income Forecasts Despite possible discussions about recalibrating the timing of the expensive projects, Saudi Arabia remains optimistic that it could pull off the Vision 2030 plan to have its non-oil economy grow with tourism and technology. The Kingdom has seen its non-oil sector grow steadily in recent years, with more income from non-oil activities, Al-Jadaan said at the forum in Qatar this week. This increased income for the state, coupled with a conservative forecast about revenues from oil, would help Saudi Arabia with the plans for funding the many futuristic projects of Vision 2030, he added. “We are very conservative in our projections and therefore our plans on how the oil revenue will cover that expenditure,” the minister noted. The non-oil sector and government activities grew in the first quarter of 2024, but a 10.6% decline in oil activities – as the Saudis are limiting oil production at 9 million barrels per day (bpd) – dragged down the Kingdom’s GDP by 1.8% compared to the same period of 2023, Saudi Arabia’s General Authority for Statistics said earlier this month. This decrease was primarily driven by a 10.6% decline in oil activities. At the same time, non-oil activities increased by 2.8%, and government activities grew by 2.0% on an annual basis in Q1 2024. The seasonally adjusted real GDP rose by 1.3% in the first quarter this year compared to the fourth quarter of 2023, driven by a 2.4% increase in oil activities, along with 0.5% growth in non-oil activities. Revenues for the state from the oil sector went up by 2% year-on-year in the first quarter, while non-oil revenues increased at a faster pace, 9%, to drive an overall 4% rise in total budget revenues, official data showed in early May. Saudi Arabia, however, booked a budget deficit in Q1 2024, due to rising expenditures which outpaced government revenues. Separately, inflation in the Kingdom is holding steady and below global levels, potentially giving assurances to Saudi Arabia’s officials and financiers that the economy is not nearing the point of tipping into overdrive. The annual inflation rate in Saudi Arabia was 1.6% in April 2024, the same as the annual inflation rate in March. The Consumer Price Index (CPI) inched up by 0.3% in April compared to March 2024. Saudi officials have finally started to acknowledge that some expensive futuristic projects may have to wait longer for development, to avoid roiling the economy of the world’s top crude oil exporter, which could have an impact on the global oil market and economy.