Asia’s Crude Oil Imports Set for Record High in February
Asia is poised to import record volumes of crude oil this month as top importers boost purchases amid strong runs and a changing geopolitical situation. Asia, the key oil-importing and demand growth region, is expected to import as many as 28.51 million barrels per day (bpd) of crude oil in February—a record high on a daily basis in data compiled by commodity analysts Kpler and cited by Reuters’ columnist Clyde Russell. The February imports would be higher than 27.48 million bpd in December and 26.22 million bpd in January, per the data provided by Kpler. Asia’s biggest crude oil importers, China and India, will drive the jump in February arrivals to a record high. China and India are also the largest and third-largest oil importers in the world, respectively. While Asian imports are booming this month, China and India have started to starkly diverge in sourcing their crude supply. China is boosting imports from both Russia and Saudi Arabia, as deep discounts for Russian oil and lower Saudi term prices are stoking the appetite of Chinese refiners. India, on the other hand, is slashing Russian purchases amid U.S. pressure and is raising imports from the Middle East, West Africa, and the Americas. China’s oil imports from Russia are on track for an all-time high of over 2 million barrels per day in February, as India is withdrawing from Russian spot purchases and supply is now heavily discounted for Chinese independent refiners. China is set to import 2.07-2.08 million bpd of oil from Russia this month, according to data from Vortexa and Kpler cited by Reuters. Moreover, near-term demand for Saudi Arabia’s oil in China is soaring after the Kingdom early this month slashed its official selling prices (OSPs) for Asia to the lowest level versus regional benchmarks in more than five years. India is also boosting imports from Saudi Arabia as it seeks alternatives to Russian crude. Kpler estimates that India’s imports would hit 1.03 million bpd in February, up from 774,000 bpd in January and the highest volume since November 2019.
India retains stake in Russia’s Sakhalin-1 oil and gas project
India’s state-run Oil and Natural Gas Corporation has completed payments to the liquidation fund of the Sakhalin-1 project to retain its 20% stake, Russia’s Interfax reported on Feb. 17. “Our stake in the Sakhalin-1 project is secured, and we are participating in the project. Production and operations are proceeding as usual,” ONGC Chief Financial Officer Vivek Tongaonkar said. “We continue to move forward with the support of the Russian and Indian governments. We have been informed that our equity stake in the company is secured, which is a very positive step, and we will be able to receive part of our delayed dividends.” When the new operator of the production-sharing agreement (PSA) project was established, equity stakes were immediately allocated only to Russian companies — Sakhalinmorneftegaz-Shelf (11.5%) and RN-Astra (8.5%). Foreign partners were required to confirm their consent to receive proportional stakes in the new operator. That consent was provided by ONGC (20%) and Japan’s SODECO (30%). U.S. energy major Exxon Mobil, which held a 30% stake, said it was ending its participation in the PSA project and fully exiting Russia. ONGC faced difficulties formalizing its stake in the new Sakhalin-1 operator because of sanctions imposed on Russian banks and Russia’s countermeasures, Interfax reported. Numerous Western sanctions complicated ONGC Videsh’s ability to transfer funds to Russia in U.S. dollars, while ruble payments require approval from Russian authorities.
Numaligarh Refinery Limited expands capacity to 9 MMTPA
NRL is executing a major expansion project of capacity augmentation from present 3.0 MMTPA to 9.0 MMTPA by installing a 6 MMTPA capacity refinery and associated crude oil terminals & pipeline considering processing of Arab Light (AL) and Arab Heavy (AH) crude oil (AL:AH=30:70). The required additional quantity of crude oil is planned to be imported through Paradip Port in Odisha. A cross country pipeline of around 1640 Km shall be laid from Paradip Port to Numaligarh for transporting 9 MMTPA of imported crude. Part of the Government of India’s Hydrocarbon Vision 2030 initiative to help meet growing demand of petroleum products in northeastern India, NRL’s refinery expansion will increase overall crude oil processing capacity and it is scheduled to be completed by 2025. Environmental Clearance was obtained for the project on 27th July 2020. Approved budget for the project is Rs. 28,026 Cr. Revised cost estimate of Rs. 33,901 Cr. is under approval and being reviewed at MoP&NG. The project implementation activity was started after obtaining Environmental Clearance on 27th July 2020. Contract for all major Project Management Consultancy has been awarded. M/s Technip Chennai was appointed as Managing PMC for the Refinery Project. Additionally, M/s ThyssenKrupp Industrial Solutions and M/s Technip Delhi are appointed as EPCM consultants. Licensors for the main units have been appointed and work for BEDP progressing as per schedule. Subsequently, all studies, clearances, scrap removal & pre-project activities had been taken up and are currently under progress. The award of main plant EPC contracts are lined up for awarding. Procurement of other long lead items commenced in FY’21. With the support of stakeholders and project implementation partners NRL is taking forward the project as per the set time-lines by the Government of India. Project is progressing as per set timelines. The commissioning of the new refinery is anticipated to commence from December 2025 starting with crude distillation unit and progressively commissioning the remaining process unit within next year during FY 2026-27. The crude pipeline is planned to be routed through five states; Odisha, Jharkhand, Bihar, West Bengal and Assam. CTE approval for COIT has been received on 27 Jan 2021. EAC recommendation (MoEF) for CRZ approval has been obtained on 19 May 2021. M/s Engineers India Ltd. has been appointed as PMC for the Pipeline project and Crude Oil Terminal is being constructed based on BOOT basis.
IEA Chief Warns Fracturing Global Order Is Splintering Energy Policy
A fracturing in the “global order” is threatening the harmony in energy policies, the head of the International Energy Agency has warned. “We see a fracturing in the global political order in general, and there are, of course, reflections of that on the energy scene. Different countries are choosing different paths in terms of energy and climate change,” Birol told the Financial Times in an interview. The warning follows the U.S. Environmental Protection Agency’s removal of the so-called endangerment finding, which served as the basis for climate change-focused policies passed in significant numbers during the Biden administration. The finding stipulated that carbon dioxide, methane, and four other gases were harmful to people’s health and well-being. This was the latest move by the Trump administration to dismantle Biden’s climate regulations and legislation as it prioritises energy security—and energy dominance—over emission reduction. Yet even the European Union, which consistently states emission reduction is still priority number-one, has been walking back some of its new regulations and commitments, under pressure from the business world, which has been bearing the cost of those commitments, alongside consumers. The 2035 ban on internal combustion engine cars, for instance, has been renegotiated and is no longer a done deal, and now the authorities in Brussels are mulling over ways to reduce energy costs for industrial consumers in a bid to prevent the complete deindustrialization of the bloc. A revision of emission permit trading is also on the agenda, with the chemicals industry calling for an urgent revamp of the system and a cancellation of the planned phaseout of free carbon permits. Climate change was “moving down the international policy agenda,” Birol said this week, summarizing the latest trends in energy policies. That move down the agenda has even reached China, which this year reduced subsidies for electric vehicles, which immediately affected sales, leading to a 20% monthly drop.
Oil Bears Are Dangerously Underestimating Geopolitical Risk
For decades, oil prices could swing wildly on even the distant prospect of war in the Middle East. With U.S. shale, that changed, leading many to assume that anything short of an oil blockade in the Strait of Hormuz will leave oil markets cold—and such a blockade is highly unlikely. This, however, is a false sense of security. Geopolitics can still flip the script on oil bears. The most recent oil price rally was prompted by the threat of a military escalation between the United States and Iran. Interestingly, the oil blockade that the United States imposed on Venezuela earlier this year failed to really move benchmarks in any consistent way. A war with Iran, on the other hand, has pushed Brent crude past $67 per barrel and WTI to over $62. Rystad Energy recently published five possible scenarios about U.S.-Iranian relations, with the best-case one involving productive talks leading to a new nuclear deal that the U.S. would force on Tehran, per the consultancy, and that would lead to an increase in Iran’s oil production. This is obviously a bearish scenario – but the other four are increasingly bullish. They range from limited U.S. strikes on Iranian nuclear facilities and possibly oil infrastructure to wide-ranging strikes, the death of the country’s Supreme Leader, and civil unrest ensuing after the collapse of the government. Interestingly, Rystad Energy does not see a huge price increase potential for crude oil in any of its scenarios. In the worst-case ones, the consultancy sees oil jumping by $10 to $15 per barrel as Iran’s production suffers from the aftermath of adverse events. Some, however, note that if the war spreads across the Middle East, prices could top $100. A Bloomberg article looked at such a scenario recently, with the authors noting that the price shock would be the result of Iran closing the Strait of Hormuz, albeit for a brief period. Even though brief, such a disruption would affect 20% of global oil supply, the authors noted, leading to a potential price jump of as much as 80%, based on historical data. Still, the effect on oil prices from this worst-case scenario would be limited—because the world, at least according to the authors, does not need as much oil as it did decades ago. The reason for this is energy efficiency, with the authors pointing out that “In the US, the amount of oil needed to produce one unit of GDP has fallen by about a quarter since 2011.” However, on a global scale, crude oil remains the top primary energy source, which means a price shock would cause pain—although not as much pain as it might have caused 20 years ago, for instance, thanks to inflation. “Inflation means $100 oil today buys fewer goods and services than $100 oil a decade or two ago,” Dina Esfandiary and Ziad Daoud wrote. This is hardly any consolation for those who, with Brent at over $100, would be able to afford even fewer goods and services. However, such a major disruption is the least likely scenario for the U.S.-Iranian conflict. Just this weekend, Reuters reported that Iran wanted to make a deal with the U.S., citing a senior Tehran official as suggesting the Iranian side was willing to make concessions in order to strike a deal and get sanctions lifted. Needless to say, that would be highly bearish for oil prices because it would likely lead to an expansion in Iran’s oil production. But in case the two fail to agree on a deal, the potential for escalation remains active—and the prospect of a deal is also distant, despite this latest signal from Tehran. Indeed, last week saw oil prices make gains on reports that the U.S. was building a substantial military presence in the Persian Gulf, signaling it was prepared for an extended conflict with Iran—and that extended conflict significantly raises the risk of oil infrastructure getting targeted and disrupting Iran’s production of crude, currently at some 3.2 million barrels daily. The extended conflict scenario also increases the risk of other Middle Eastern oil producers getting drawn into the fighting as targets for strikes, facing potential disruption to their oil infrastructure. Yet events from last year suggest that no one in the Middle East really wants oil prices to go through the roof. Higher is better up to a point, and while oil demand is among the least elastic in the world, it still responds to price shocks. Some analysts point to China’s oil storage spree as grounds for arguing there will be no oil price shock. China is the world’s largest importer of crude, it is the biggest buyer of Iranian crude, and it has been buying more oil than it has been refining for over a year—and building new storage to keep doing the same. China, in other words, is insulating itself against just such price shocks. The rest of the world, however, doesn’t really have China’s capacity to insulate itself. For the rest of the world—and for China, too—a geopolitical price shock would be painful.
India Records Lowest-Ever Price for Green Hydrogen in Tender
India has recorded the country’s lowest-ever bid for the supply of green hydrogen, according to Renewable Energy Minister Pralhad Joshi. The bid of 279 rupees ($3.08) per kilogram was to supply 10,000 tons of green hydrogen a year to Numaligarh Refinery Ltd., majority owned by state-run Oil India Ltd., in the northeastern state of Assam. Nine bidders participated in the tender.
Russian oil exports to China hit new high in February as India pulls back
China’s Russian oil imports are set to climb for a third straight month to a new record high in February as independent refiners snapped up deeply discounted cargoes after India slashed purchases, according to traders and ship-tracking data. Russian crude shipments are estimated to amount to 2.07 million barrels per day for February deliveries into China, surpassing January’s estimated rate of 1.7 million bpd, an early assessment by Vortexa Analytics shows. Kpler’s provisional data showed February imports at 2.083 million bpd, up from 1.718 million bpd in January. China has since November replaced India as Moscow’s top client for seaborne shipments as Western sanctions over the war in Ukraine and pressure to clinch a trade deal with the US forced New Delhi to scale back Russian oil imports to a two-year low in December. Russian crude imports are estimated to fall further to 1.159 million bpd in February, Kpler data showed. That has depressed Russian oil prices to a discount of $9 to $11 a barrel below benchmark ICE Brent for January/February deliveries to China, the lowest in years for Urals, a grade loaded from European ports that has typically landed in India due to shorter voyages versus China. Urals as well as other export grades such as Sokol and Varandey piled onto regular shipments of Russia’s flagship ESPO blend exported from the Far East port of Kozmino located closer to China, creating strong competition versus rival supplies from Iran.
Oil demand to touch new high in FY27 on rising use of key fuels
India’s consumption of refined petroleum fuels and products is expected to hit another fresh high in the upcoming financial year — 2026-27 (FY27) — on the back of steady growth in energy use across various sectors of the economy, as per latest government estimates. According to projections by the Petroleum Planning & Analysis Cell (PPAC) of the Ministry of Petroleum and Natural Gas (MoPNG), the country’s consumption of petroleum products — seen a proxy for crude oil demand — in FY27 is seen rising 2.8% over the revised estimate for FY26 to 250.8 million tonnes. The consumption growth is expected to be led by fuels and products like petrol, aviation turbine fuel (ATF), liquefied petroleum gas (LPG), diesel, and naphtha. India’s petroleum consumption has been rising to reach a new high with each passing year, with the exception of two years when demand was hit because of the COVID pandemic. The revised estimate for the current fiscal — 244 million tonnes — is slated to be the highest-ever petroleum product consumption level so far, but will likely be topped in the next financial year.
Venezuela Oil Revenue Projected to Hit $5 Billion Under U.S. Control
Venezuela’s oil sales, under the control of the United States for five weeks now, are set to bring $5 billion over the next few months, U.S. Energy Secretary Chris Wright told NBC News in an interview. “Sales today are over a billion dollars, and in fact, we have sort of short-term agreements over the next few months that will bring in another $5 billion,” Secretary Wright said in the interview during a historic visit to Venezuela to meet with the interim President Delcy Rodríguez. The United States has already transferred $500 million in proceeds from sales of Venezuelan crude oil to Caracas, following the deal agreed by the two governments in January. All the money from the oil sales, handled by top commodity traders Vitol and Trafigura, goes back to Venezuela from a U.S. Treasury-controlled account, Secretary Chris told NBC News. There is a lot of work to be done and massive investments need to flow for Venezuela to restore its oil industry, “But it’s on the road to becoming investable,” Secretary Wright told NBC News. At last month’s White House meeting of U.S. President Trump with oil executives, ExxonMobil’s CEO Darren Woods said that “If we look at the legal and commercial constructs—frameworks—in place today in Venezuela, today it’s uninvestable.” During the visit to Venezuela, Secretary Chris said earlier this week that Venezuela’s crude oil production could surge as soon as this year. “This year, we can drive a dramatic increase in Venezuelan oil production, in Venezuelan natural gas production and Venezuelan electricity production,” the U.S. official said. Commenting on a recent change in Venezuela’s oil law, Wright said that it was “a meaningful step in the right direction”, as quoted by AP, but “probably not far and clear enough to encourage the kind of large capital flows.”
Oil Prices Tumble Toward Second Consecutive Weekly Loss
Crude oil prices began trade with a decline today, set for the second consecutive weekly loss as fears of a U.S.-Iran escalation faded. At the time of writing, Brent crude was trading at $67.36 per barrel, with West Texas Intermediate at $62.66 per barrel, both essentially unchanged on Monday but down from higher levels seen earlier in the week. “Signs the U.S. is seeking more time to reach a nuclear deal with Iran, reducing the near-term geopolitical risk premium,” have pressured prices, according to IG analyst Tony Sycamore, as quoted by Reuters. ING commodity analysts, meanwhile, pointed to data released this week by OPEC and the U.S. Energy Information Administration, noting that the market had largely ignored the EIA data, which showed an increase in both oil inventories and in production, at 8.53 million barrels and 498,000 barrels daily, respectively. OPEC, on the other hand, had a bullish report for oil traders, keeping its demand growth projections unchanged at 1.38 million barrels daily for this year and 1.34 million barrels daily for 2027. OPEC production, however, fell by 439,000 barrels daily last month, mostly resulting from disruptions in Kazakhstan. The latest monthly oil report of the International Energy Agency, however, prompted a 3% decline in oil prices on Thursday. The IEA revised down its demand growth predictions to 850,000 barrels daily, after last month it made an upward revision to that prediction, to 930,000 barrels daily. The IEA also confirmed its estimate that the oil market will be in a surplus in 2026, with supply set to rise by 2.4 million bpd in 2026, to 108.6 million bpd. Growth will be roughly evenly split between non-OPEC+ and OPEC+ producers, the agency said. Last month, however, global oil supply plunged by 1.2 million bpd to 106.6 million bpd, as severe winter weather disrupted North American operations, in addition to the Kazakhstan decline.