No takers for rupee payment for oil imports
India’s push for rupee to be used to pay for import of crude oil has not found any takers as suppliers have expressed concern on repatriation of funds and high transactional costs, the oil ministry told a parliamentary standing committee. The default payment currency for all contracts for import of crude oil is US dollar as per the international trade practice. However, in a bid to internationalise the Indian currency, the Reserve Bank of India on July 11, 2022 allowed importers to pay with rupees and exporters be paid in rupee. While there has been some success with non-oil trade with a select few countries, rupee continues to be shunned by oil exporters. “During FY 2022-23, no crude oil imports by oil PSUs was settled in Indian rupee. Crude oil suppliers (including UAE’s ADNOC) continue to express their concern on the repatriation of funds in the preferred currency and also highlighted high transactional costs associated with conversion of funds along with exchange fluctuation risks,” the oil ministry told the parliamentary department related standing committee. The ministry, whose subimissions are part of the committee’s report which was tabled in Parliament last week, said Indian Oil Corporation (IOC) has informed that it incurred high transaction costs as crude oil suppliers pass on the additional transactional costs to IOC.” The RBI, it said, had last year permitted opening of rupee vostro accounts in the partner trading country. Under this mechanism, Indian importers undertaking imports through this mechanism shall make payment in Indian rupee which shall be credited into the special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller /supplier. “Payments for crude oil can be made in Indian rupee, subject to the suppliers’ complying with regulatory guidelines in this regard,” the ministry said. “Currently, Reliance Industries Ltd and oil PSUs do not have an agreement with any crude oil supplier to make purchases in Indian currency for supply of crude oil.” India is the world’s third largest energy consumer. With its domestic production meeting less than 15% of its needs, the country imports the remaining crude oil, which is converted to fuels such as petrol and diesel at refineries.
First rupee payment for oil to UAE: India looks for more deals, no targets: Officials
India’s first-ever payment in rupees for crude oil purchased from the UAE is helping the world’s third largest energy consumer push for taking the local currency global, as it looks for similar deals with other suppliers, officials said, adding internationalisation is a process and there are no targets. With the nation more than 85 per cent dependent on imports for meeting its oil needs, India has been pursuing a three-pronged strategy of buying from the cheapest available source, diversifying sources of supply and not breaching any international obligation like the price cap in case of Russian oil. While the strategy helped save billions of dollars, when it ramped up imports of Russian oil that was shunned by some in West post Ukraine war, it is looking to settle trade in rupees instead of dollars in a bid to cut transaction costs by eliminating dollar conversions. India in July signed an agreement with the UAE for rupee settlement and soon after Indian Oil Corporation (IOC) made payments for purchase of a million barrels of crude oil from Abu Dhabi National Oil Company (ADNOC) in Indian rupees. Some of the Russian oil imports too have been settled in rupee. Officials said the default payment currency for import of crude oil has been the US dollar for several decades and the currency traditionally has liquidity as well as lower hedging cost. But to boost the rupee’s role in cross-border payments, the Reserve Bank of India allowed more than a dozen banks to settle trades in rupees with 18 countries since last year. Since then, India has been encouraging big oil exporters such as the UAE and Saudi Arabia to accept the Indian currency for trade settlements, officials said, adding the first success happened in August this year when IOC made the rupee payment to ADNOC. More such deals may happen in future, they said, insisting there was no target as internationalisation is a process and cannot happen overnight. “We have to be mindful that it (rupee settlement) does not lead to increase in cost and is in no way detrimental to the trade,” an official said. “Settling a trade in rupee where the amount is not big does not pose much problem but when you have each shipload of crude oil costing millions of dollars, there are issues.” India, they said, is navigating the situation keeping overarching national interest in mind. The internationalization of the rupee will help reduce dollar demand and make the Indian economy less vulnerable to global currency shocks. A parliamentary standing committee report, tabled in Parliament last week, stated that there were not many takers for Indian rupee. Officials said that situation was true for 2022-23 fiscal and there has been a rupee trade this year. “During FY 2022-23, no crude oil imports by oil PSUs were settled in Indian rupee. Crude oil suppliers (including UAE’s ADNOC) continue to express their concern on the repatriation of funds in the preferred currency and also highlighted high transactional costs associated with conversion of funds along with exchange fluctuation risks,” the ministry told the panel. The ministry, whose subimissions are part of the committee’s report which was tabled in Parliament last week, said India Oil Corporation (IOC) has informed that it incurred high transaction costs as crude oil suppliers pass on the additional transactional costs to IOC.”
IOC, BPCL, HPCL in talks to raise ₹5,500 crore by securitising licence fee
Indian Oil, Bharat Petroleum and Hindustan Petroleum are discussing plans to raise ₹5,500 crore by securitising the licence fee they get from their petrol pump dealers as part of the government’s push for asset monetisation by state companies, according to multiple people familiar with the matter. Top company executives at three state-run refiners have discussed the monetisation plan with officials at Niti Aayog and the petroleum and finance ministries for months, they said. Indian Oil is targeting to raise ₹2,500 crore while BPCL and HPCL are aiming for ₹1,500 crore each by securitising the licence fee for three years and selling the securities to banks or other buyers, according to the companies’ plans. The licence fee is linked to the volume of petrol and diesel sold at a pump and is settled between a dealer and the company each fortnight or month. The licence fee for diesel and petrol varies from ₹ 128 per kilolitre to ₹369 per kilolitre based on the location of the petrol pump. A goods and services tax (GST) of 18-28% also applies to the licence fee. Indian Oil, BPCL and HPCL didn’t respond to ET’s request for comment for the story. A source close to Indian Oil, who didn’t want to be named, said the idea of monetising licence fees was first discussed last year when fuel retailers were making losses following a spike in international fuel prices and were looking to raise cash through innovative means. While the plan to monetise licence fees is on the table, the urgency to execute it has reduced as companies now flush with cash due to record-high profits in the first half of the current fiscal year, the person said. Compared to Indian Oil, BPCL and HPCL appear keener on the plan to monetise licence fees, another person with knowledge of the matter said. The government has been pushing state-run oil companies for years to monetise their assets to raise resources that can be deployed in new projects. Three years ago, the government had drawn up a plan, which expected state oil and gas companies to transfer some of their pipelines to InvITs and sell minority stakes in those to raise Rs 17,000 crore. The plan didn’t take off as the companies said they could raise capital from lenders at a much lower cost than the return they may have to offer to InvIT investors.
Two Elections that Will Impact Energy and Geopolitics in 2024
The New Year will bring not only new leadership to key energy venues around the world, but it will also bring impactful developments in the run-up, as incumbents act to secure their destinies at all costs. From Russia to Venezuela and the United States, with a stage-setting surprise already unveiled in Argentina, this is one of the most important election years in decades. Russia: March 15-17, 2024 Russian President Vladimir Putin is pulling out all the stops for his presidential bid in March next year. To that end, leading Kremlin critic and the country’s most influential opposition figure and anti-corruption campaigner, Alexei Navalny, has been sequestered (at best) in a secret location for the past two weeks. No one knows where the imprisoned opposition leader is now. Navalny, who has been serving a prison term in the 1K-6 prison outside of Moscow has not appeared at any scheduled court hearings for December, according to The Moscow Times, and his lawyers haven’t seen him since December 5. In August, Navalny was sentenced to 19 years in prison on “extremism” charges in a brazen attempt to keep him out of politics. In the meantime, it’s the high season for treason in Russia as Putin seeks to quash any detractors. According to The Moscow Times, a record number of 63 cases of high treason have been sent to the courts this year, with an additional seven cases for “confidential cooperation with a foreign state or organization.” It smacks of Stalin’s days. On December 22, Putin seized the country’s biggest car dealership (Rolf) and put it under state management, claiming it was for commercial reasons but the reality is that the owner is Sergei Petrov, a Kremlin critic. Rolf, which is based in Cyprus, has been around since the fall of the Soviet Union. The Kremlin has accused Rolf of illegally moving money abroad at a time when Russia’s wartime economy can’t allow for it. Petrov’s take on this is that Putin is paving the way for his cronies to redistribute assets amongst themselves. On the war in Ukraine, it remains unclear as to whether Putin has succeeded in conveying to the public that this is a victory in any way, or what it has meant for the Russian economy or Russia’s influence in the former Soviet arena. Russia in 2024 will undoubtedly usher in another victory for Putin, but his cronies and loyalists have been shifting, and that means a redistribution of assets and a largely uninvestable country. His victory will not, of course, shock the market or have much impact on oil and gas prices, which have long ago calculated any Putin premium there is to be had. A defeat for Putin, however, would roil markets because of the massive amount of uncertainty this would bring. Can anyone challenge Putin at this point? Not really. The only challenger hopeful is former journalist Yekaterina Duntsova, who is being accused of being backed by Yukos Oil boss Mikhail Khodorkovsky (both deny this), who is classified in Russia as a “foreign agent”. He’s a fugitive oligarch running an opposition movement from outside of Russia. A second candidate appeared in December, 60-year-old Boris Nadezhdin, a former politician and commentator who has accused Putin of undermining the country’s democratic institutions with his authoritarianism. He’s also called Putin’s invasion of Ukraine a “fatal mistake”–a statement that could land him in prison for treason. 71-year-old Putin does not appear to have been weakened significantly by the failed Wagner mutiny earlier this year; Ukraine’s counteroffensive has showed signs of stalling; and while the economy may not be rock solid due to the war effort, the propaganda machine is working at full force to get across a different narrative, and it seems to be working. Most analysts are preparing for a show election that will see Putin–already in power since 1999–remain in power thanks to Constitutional amendments that he made sure went through to allow him to stay in power for more than a decade longer. For oil, it will mean more of the current status quo of war in Ukraine and Western sanctions and price caps, which will simply become the norm. Venezuela – 2024 (TBD) Venezuelan President Nicolas Maduro cut a deal with Washington for a temporary easing of sanctions on Venezuelan oil. The deal was for free and fair elections, and that he would not attempt to thwart the opposition’s participation. His first move was to issue arrest warrants for a handful of opposition figures, including former National Assembly leader Juan Guaido and staffers of the opposition presidential candidate Maria Corina Machado. This coincided with the holding of a referendum on the annexation of Essequibo, the oil-rich area of Guyana, which makes up some two-thirds of the country’s territory. While Guyana and Venezuela have held talks since and vowed to refrain from a military confrontation over the matter, Maduro is desperate, and from a domestic standpoint, this is a play designed to circumvent elections by escalating things to a level that would allow him to declare a state of emergency. As noted by Andres Oppenheimer writing for the Miami Herald in late December, to achieve his goals, Maduro could send a stealth force to claim Essequibo without firing a single bullet. By establishing this presence and officially declaring Essequibo under Venezuelan control, Maduro creates an international incident that the West will find necessary to address. Under the continually escalating pressure of an “international incident”, Maduro will find the legitimacy he needs to declare a state of emergency and cancel 2024 elections, or at least postpone them indefinitely. A state of emergency would allow him to cancel elections. The West would act slowly because China and Russia would back Venezuela’s claim and the West would seek to avoid any actual confrontation. This is a potential Pandora’s Box of geopolitical consequences, too, because Maduro is also being used as a puppet for Chinese and Iranian ends. As historian Gregory Copley noted for Oilprice.com earlier in December, China and Iran
Red Sea Ship Attacks Pose Threat To West Asian Crude Oil Supply
The rising attacks on ships, especially oil tankers, in and around the Red Sea may cause a temporary hindrance to India’s petroleum exports from West Asia, given the recent developments. Concerns were raised after two India-bound warships were targeted by drones during the Israel-Hamas conflict, as outlined by media reports. Late on Saturday, Iran-aligned Houthi rebels are said to have launched a drone strike on the crude oil tanker MV Sai Baba, which is registered under the flag of Gabon and is carrying 25 Indian crew members. The United States Central Command (CENTCOM) reports that the incident happened in rebel-controlled territory, but thankfully no injuries were reported. MV Sai Baba, certified by the Indian Register of Shipping, was en route to India, adhering to international law requiring merchant ships to register in a host country. The US Central Command’s report followed another attack on the merchant vessel MV Chem Pluto, which was hit by a suspected drone in the Arabian Sea. This vessel, with around 20 Indian crew members, caught fire about 217 nautical miles off the Porbandar coast. The fact that most oil volumes pass through the affected waters makes these instances significant. The government is keeping a careful eye on the situation and is aware that these kinds of attacks may have an effect on the short-term flow of crude oil from West Asia. Furthermore, as shipments from Europe are choosing to take the longer route around Africa and the Cape of Good Hope rather than the Red Sea through the Suez Canal, shipping costs are predicted to increase even more.
India’s Russian crude imports prevented price surge, ‘havoc’ in global oil market, says petroleum ministry
Global crude oil prices would have surged and created “havoc” in the international oil market had India not ramped up oil imports from Russia in the aftermath of Moscow’s February 2022 invasion of Ukraine, the petroleum and natural gas ministry told the department-related parliamentary standing committee. “If they (Indian refiners) had not imported Russian oil into India, which may be a big number of 1.95 million barrels per day, that deficiency would have created a havoc in the crude oil market and the prices would have shot up by about $30-40,” a petroleum ministry representative was quoted as saying in a recent report of the standing committee on petroleum and natural gas. The report was tabled in Parliament on December 20. “The crude oil market is such that in the market of 100 million barrels per day, if the OPEC (Organization of the Petroleum Exporting Countries) says that they are going to reduce it by one or two million barrels per day, prices increase by 10 to 20 per cent and reach up to $125-130. If India does not absorb–I would call it absorption–1.95 million barrels per day, these prices would have reached $120-130. It would have created a havoc,” the petroleum ministry representative added. The report did not name the representative. Usually, senior bureaucrats of the petroleum ministry represent the ministry before the standing committee. India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its requirement. The country has a refining capacity of over 250 million tonnes per annum, or 5 million barrels a day.
Year 2023 | From $82 to near $100 and back: How Brent crude moved in 2023 over OPEC+ cuts and more
Crude oil benchmark Brent futures has moved sideways in the last one year – between January to December 2023, majorly due to the supply cuts announced by the Organisation of Petroleum Exporting Countries and its allies (OPEC+) as well as the Israel-Hamas war. Oil majors including Saudi Arabia and Russia have since then defended the oil production cuts as a precautionary measure, aimed at the ‘stability of the oil market’. Among other reasons, a stronger US dollar and the spike in US bond yields in the last few months have also dictated the movement of crude oil prices. However, the latest meeting by OPEC+ turned out to be disappointing for the uptrend of prices as investors saw limited impact of the supply cuts on oil markets. What’s been the movement of crude oil prices in 2023? The Group of Seven (G7) industrialized countries in 2022 imposed a price cap of $60 per barrel on Russian oil shipments in response to Russia’s invasion of Ukraine. Following this, crude prices remained volatile going into January 2023 and Brent crude hovered around $82 per barrel during the month. In April 2023, OPEC+ announced oil production cuts of around 1.16 million barrels per day (bpd) in a surprise decision. The shock cut, led by Saudi Arabia, immediately drove crude oil prices 8 per cent higher to $83.95 a barrel, which at the time – was the highest rise in more than a year. The voluntary cuts started from May 2023 and were put in place to last until the end of the year. OPEC+ met for its scheduled oil output policy decision in June 2023 and announced that it will reduce overall production targets from 2024 by a further total of 1.4 million bpd. OPEC nations produce around 30 per cent of the world’s crude oil. Saudi Arabia is the largest oil producer within the cartel, producing more than 10 million bpd. OPEC+ pumps around 40 per cent of the world’s crude.
Tankers carrying 5 million barrels of Russian oil fail to reach India
Six vessels carrying almost 5 million barrels of Russian oil failed to reach their destinations in India, some idling kilometers off the coast for weeks without providing a reason, Bloomberg reported on Dec. 20. Recent U.S. sanctions targeting the violators of the $60-per-barrel price cap could partially be the reason, the news outlet speculated. The U.S. Treasury Department sanctioned the NS Century ship, belonging to the Russian Sovcomflot shipping company, on Nov. 16 for violating the price cap. Two days later, the vessel halted south of Sri Lanka while carrying Russian oil to the Indian port of Vadinar, Bloomberg wrote. In the past week, NS Century was later reportedly joined by two other Sovcomflot-owned tankers carrying oil to Vadinar. Two more tankers heading to another Indian port, Paradip, also came to a sudden stop before reaching their destinations, and another ship may soon join them, according to Bloomberg. Five of the listed vessels belong to Sovcomflot. Both the U.S. and the EU began ramping up sanctions to enforce the price cap on Russian seaborne crude. The measure was imposed last year to limit Moscow’s oil revenue without destabilizing global markets.
GAIL Gas opens 22nd CNG outlet at Surathkal in Dakshina Kannada
GAIL Gas Limited (GGL) opened its another Compressed Natural Gas (CNG) station at HPCL Vijay Fuels, Surathkal on Tuesday. This is the 22nd CNG station of the company in Dakshina Kannada. The station can serve more than 1,000 small vehicles, LCVs and buses and trucks in a single day. As it is on the NH 66, it will encourage long distance journeys on CNG, a company release said. It has plans to start CNG stations at Mangladevi, Kanyana, Kadanjebettu, Puttur, Nelyadi Ullal and Talapady in the district in the near future, it said R.K. Jain, Director (Finance), GAIL (India) Limited and Director, GAIL Gas Limited and Ajay Tripathi, Executive Director GAIL (India) Limited were present on the occasion.
Oil Prices Poised to Bounce Back in 2024
Crude oil prices are at lows not seen in months. There seem to be few factors capable of changing that. Yet commodity analysts seem to be more bullish when it comes to 2024. The key to that bullishness is demand. Even after the IEA projected faster than previously expected demand growth for next year, traders took note and analysts wrote notes. Per these notes, the five top U.S. banks expect a median Brent price of $85 for 2024. And that’s without any major supply disruption. Goldman Sachs recently cut its oil price forecast for 2024 to between $70 and $90 per barrel of Brent. Previously, the bank had expected prices between $80 and $100 per barrel. As a single number, Goldman’s analysts expected an average Brent price of $92 before the latest revision, Bloomberg reported last week, but now they may have trimmed that too. The bank cited higher U.S. oil production as the reason for the revision, as the country’s output and oil exports hit a record this year. However, forecasts for 2024 are for much slower growth next year, according to the EIA. It sees 2024 growth at barely 180,000 bpd, compared to some 1 million bpd this year. Citigroup, meanwhile, is forecasting an average 2024 oil price of $75, which is the lowest of the five forecasts and in line with Citi’s contrarian stance this year. This stance proved closest to what actually happened to oil prices this year. Citi had pegged the annual average for Brent at $80, and it is close to that. Per Citi analysts, the reason for the guarded price prediction is slower demand growth resulting from what they called “economic and energy-transition headwinds,” as quoted by Bloomberg. Citi also cited higher U.S. output as another reason for the low forecast and projected OPEC+ will stick to its deeper output cuts to put a floor under prices. The other three big Wall Street banks have set their 2024 Brent price projections at between $83 per barrel and $90. JP Morgan has the lowest price forecast after Citi, at $83 per barrel of Brent, while Bank of America is the most bullish, expecting Brent to average $90 per barrel next year. Morgan Stanley sits in the middle with a price forecast of $85 per barrel. Basically, the top five Wall Street lenders expect oil prices next year to stay within the range they’ve been over the past three months or so. Higher oil supply from non-OPEC producers is one reason. This supply is widely seen being led by the United States, but other producers such as Guyana, Brazil, and Norway are also raising production—even as their leaders signed up for a reduction in hydrocarbon use at COP28. The other part of the price equation—demand—is rather bullish. OPEC expects it to expand by 2.2 million barrels daily next year, and even the International Energy Agency, a chronic bear lately thanks to its transition focus, said in its latest Oil Market Report that oil demand will grow faster than previously expected in 2024. The revision is equal to 130,000 bpd, bringing the total demand growth rate, per the IEA, to 1.1 million bpd—half of what OPEC has forecast. The IEA attributed its revised forecast to a better economic outlook and lower oil prices, which traditionally spur greater demand for the commodity. The agency is not so impressed by non-OPEC supply growth, although it does expect non-OPEC producers to add 1.2 million bpd to global supply, covering the projected demand growth plus change. All this makes for a very neat 2024 concerning oil prices. Asia is once again expected to shoulder the bulk of demand growth, led by China and India. Disappointment may be on its way as some expectations of Chinese demand prove to have been overly optimistic, adding weight to prices. On the other hand, the increasingly frequent news of ship attacks in the Red Sea by the Yemeni Houthis and, most recently, by pirates that seized a Malta-flagged bulk carrier bound for Turkey could turn out to be bullish for prices, even though oil tankers have not yet been attacked. In the meantime, there seems to be little change of major production outages. The market has successfully shrugged off the 450,000-bpd drop in oil supply from Kurdistan as the Kurdish and Iraqi governments continue to debate the terms of resuming the exports. Libya appears to be relatively stable for now. And Venezuela and Guyana have declared their willingness to diplomatically resolve a shared territorial dispute. The global oil picture is quite bearish, indeed. In fact, those five banks’ price forecasts may need to be revised further down unless OPEC+ decides to cut even deeper, which would be a risky move. As lower prices stimulate demand, however, things may begin to change in the price department. It’s the good old oil cycle yet again.