Will We See $100 Oil In October?
After rallying to more than $97 per barrel on Wednesday, Brent crude took a breather on Thursday as traders started to take profits and the macro-focus in the markets turned to rising interest rates. The bulls can thank a sustained fundamental tightening for helping offset concerns about a higher-for-longer rates cycle. Last week, the U.S. central bank left interest rates unchanged but bolstered its hawkish stance with a further rate increase projected by the end of the year. Higher interest rates have historically been bearish for oil prices because they usually translate to less demand for oil as activity declines with higher costs. Interestingly, commodity analysts at Standard Chartered have suggested that a hawkish Fed could turn out to be a blessing in disguise this time around since it’s likely to cause OPEC producers to be more cautious for longer. Meanwhile, the U.S. dollar has strengthened considerably over the past three months after the U.S. economy proved more resilient than expected thus fuelling appetite for American financial assets. StanChart has predicted a further 1.3 million barrels per day (mb/d) fall in global crude inventories in Q4, following 2.1mb/d of draws in Q3. The analysts have noted that while slow to join the rally, speculative funds have now moved to the long side of the oil futures market. StanChart’s proprietary crude oil money-manager positioning index is now at a 44-month high of +16.7. Even better for the bulls: the oil price rally still has legs to run. StanChart has launched SCORPIO (Standard Chartered Oil Research Price Indicator), a machine learning model for oil price forecasting. SCORPIO is a proprietary tree-based model designed to generate a forecast for Brent crude spot prices on a one-week timeframe using parameters such as U.S. fundamental data, positioning data, physical global oil stocks, refinery margins/product pricing, financial indicators, technical indicators and non-oil-specific indicators. SCORPIO has forecast a w/w price increase of USD 2.1/bbl for front-month Brent to settlement on 2 October. StanChart says the upward forecast would have been greater were it not for speculative positioning with the money-manager positioning index sewn as a pivot point indicator. SCORPIO also sees USD strength as weighing on the oil price rally. StanChart is not the only bull here. J. P. Morgan says it will stick to its strategy of “staying defensive and trimming portfolio duration.” JPM rates the Energy sector overweight despite a stronger dollar, a hawkish Fed and geopolitical developments and believes that the Fed will hold higher rates through Q3 2024. “In the current environment, the assumption is that having additional immaculate disinflation would allow rate cutting without having to have growth risk be the driver for the disinversion of the yield curve,’’ J.P. Morgan economists said in the report. Overall, Wall Street remains bullish on the energy sector despite oil stocks lagging oil prices FactSet has reported that overall, Wall Street has 11,062 ratings on stocks in the S&P 500, of which 54.4% are Buy ratings, 40.0% are Hold ratings, and 5.6% are Sell ratings. Interestingly, at the sector level, the Energy (64%) sector has the highest percentage of Buy ratings, while the Consumer Staples (45%) sector has the lowest percentage of Buy ratings. The majority of analysts expect oil prices to remain high or go even higher. “The energy stocks will obviously beat because of higher energy costs right now. The world cannot have a disruption in energy right now because the supply-demand imbalance in the world is very fragile,” Louis Navellier, chief investment officer at Navellier & Associates Inc., has said in a note. As long as Saudi Arabia and OPEC+ maintain production discipline and markets remain tight, oil prices might remain unfazed by a brawny dollar or a hawkish fed.
Aemetis Increases India Biodiesel Production To 60 Million Gallons
Aemetis Inc. (Aemetis), a renewable natural gas (RNG) and renewable fuels company focused on negative carbon intensity products, announced that the company’s Universal Biofuels subsidiary has completed an expansion of its India biodiesel plant annual production capacity to 60 million gallons (227 million liters) more than one year ahead of schedule, supplying the expanding demand for biodiesel by India government-owned oil marketing companies (OMCs). The Aemetis Five Year Plan describes an increase from 50 million gallons (189 million liters) per year to 100 million gallons (379 million liters) per year of biodiesel production capacity at the India plant to be completed by 2025. Additional capital projects to increase the production capacity to 80 million gallons (303 million liters) per year at the Kakinada, India-biodiesel plant are in process for completion in the first half of 2024, also ahead of schedule. “The market for biodiesel in India continues to expand as OMCs increase the number of blending locations and the percentage of biofuel blended into diesel,” said Sanjeev Gupta, president of Aemetis International. “The Kakinada plant has expanded production by completing upgrades to de-bottleneck the plant, and the next phase will add additional process equipment to increase capacity. When production capacity reaches 100 million gallons per year, the India business will be able to generate more than US$500 million per year of revenues.”
India withdraws new import duty on private-sector LPG importers as regional prices mount
Oil ministry officials confirmed the withdrawal when contacted by S&P Global Commodity Insights. The funds collected under the Agriculture Infrastructure and Development, or AIDC, cess are aimed at improving the agricultural sector and were passed by the parliament around end-June/early-July. But the private sector deemed it an additional levy and not a part of the government revenue program. The private sector made a representation to the government that the duty affects 100% of their import volume, but only 5% of the imports by national oil companies and public sector undertakings, and was, therefore, discriminatory, an industry source familiar with the matter said. A finance ministry amendment July 1, stated that “nothing contained in S.No 10AA shall apply to imports of Liquefied Propane and Liquefied Butane mixture, Liquefied Propane and Liquefied Butane by the Indian Oil Corp. Ltd., Hindustan Petroleum Corp. Ltd. or Bharat Petroleum Corp. Ltd. for supply to household domestic consumers or to Non-Domestic Exempted Category (NDEC) customers.” The AIDC cess was withdrawn officially via a Finance Ministry notification dated Aug. 31 and came into effect Sept. 1. “The withdrawal move has been a balancing act between the expectation of high global crude prices and ease in domestic inflation,” said an oil ministry official who declined to be identified. The full exemption of LPG, liquefied propane and liquefied butane would give relief to importers of these products, the official added. Analysts said the decision to exempt these imports from the AIDC would help cut the burden on importers and ensure that the cost implications of the farm cess were not passed on to consumers down the line. The farm cess, spread across 29 items, including gold, silver and imported apples, alcohol (except beer), was conceived to improve agricultural infrastructure, including facilities such as cold storage units, warehouses and market yards. This cess fund was crucial for raising farm production and ensuring better post-harvest management. “It’s difficult to say whether it (the withdrawal) was due to the representation by the private sector,” the source familiar with the matter said. “However, as the (Saudi) CPs started rising, the government removed the AIDC probably not to burden the end-industry too much.” Escalating prices Saudi Aramco set the October propane contract price at $600/mt, up $50/mt from the September term CP, and the October butane CP at $615/mt, up $55/mt on the month, the company said Sept. 28. The monthly increase was the third in a row after the drop in July CPs, underscoring strong heating demand ahead of the North Asian winter, healthy demand for cooking fuel in India and Indonesia for year-end holidays, and latent feedstock demand among Chinese propane dehydrogenation plants. FOB Middle East propane and butane premiums to the CPs were assessed as high as $43/mt in the past week, according to S&P Global data, as trading firms have also been bidding for evenly split cargoes, even as supply is limited by lagging spot offers from Aramco Trading Co. In the face of mounting regional prices, India on Aug. 29 slashed LPG prices by 18% for domestic households, in an attempt to curb food price-led inflation that hit its highest rate in 15 months in July. India has stopped subsidizing LPG usage for 230 million customers since June 2020 to help ease the subsidy burden on the budget, but gives Rupee 200 each via direct benefit transfer to some 95 million low income users .
What Russia’s Fuel Export Ban Means For The Markets
Russia’s temporary ban on diesel and gasoline exports—while intended to address domestic shortages and soaring prices—could exacerbate an already tight global diesel market and drive crude and middle distillate prices higher ahead of the winter. And its relaxation of the ban on low-grade diesel won’t stave off much tightness. Most analysts believe the ban will not last long as it would lead to stock builds in Russia, which lacks spare storage capacity. But many observers also believe that Russia is weaponizing energy supplies again, trying to roil central banks’ efforts to tame inflation ahead of yet another winter. The Ban At the end of last week, Russia surprised the markets by announcing a temporary ban on exports of gasoline and diesel to stabilize fuel prices on the domestic market amid soaring prices and shortages due to higher crude prices and a weak Russian ruble. Diesel and gasoline exports are now temporarily banned to all countries except to four former Soviet states—Belarus, Armenia, Kazakhstan, and Kyrgyzstan. The export restrictions don’t have an end date, so Moscow could decide at any time to lift the fuel export ban or amend it as it pleases. Earlier this week, Russia did tweak its export limitations on fuels, lifting the temporary ban on exports of low-quality diesel and marine fuel and allowing the export of fuel supplies that already have loading papers and are accepted for export to proceed. The key question is how long the diesel export ban will last. If it extends beyond October, it could threaten a more acute global middle distillate shortage, especially in Europe just ahead of the winter heating season when middle distillate demand typically rises. The Market Since the EU, the U.S., and other Western allies banned imports of Russian seaborne fuel in February, Moscow has exported its gasoline and diesel to Turkey, the Middle East, and South America. Those markets are now temporarily off limits for Russian diesel and gasoline. Saudi Arabia, for example, is thought to have been snapping up Russian diesel at knockdown prices and sending its own diesel to Europe. With a longer-than-expected ban on its diesel exports, Russia could indirectly further tighten the diesel markets in Europe and Asia. Before the Russian fuel export ban, refinery margins had already hit the highest level in eight months in August, as refiners were struggling to keep up with oil demand growth, especially for middle distillates, the International Energy Agency (IEA) said in its latest monthly report. It will take up to two weeks for the market to feel the impact of the Russian diesel export ban, Viktor Katona, lead analyst with Kpler, wrote in a Friday note cited by CNBC. But “By that point, however, the government might already annul this specific piece of legislation, as abruptly as it was published,” Katona noted. Most analysts concur that the export ban would be short-lived and as abruptly lifted as it was implemented with immediate effect last Thursday. “How severe of an impact the loss of Russian diesel has on the global market will really depend on how long the export ban is in place. Although, given the likely domestic stock build we will see as a result of the ban, we would not expect it to be prolonged,” Warren Patterson, Head of Commodities Strategy at ING, wrote on Friday. Also on Friday, industry consultants FGE noted that “A key point to remember is that the diesel ban cannot last long. Once domestic supplies are replenished, Russia will have to resume exports due to a lack of spare storage capacity.” If Russia doesn’t lift the diesel ban soon, refineries will be forced to shut down in the face of no storage capacity. Thus, the export limitations will backfire on Russia via higher pump prices and domestic fuel shortages—the very issues Moscow is trying to solve with the ban, according to FGE. Refinery shutdowns could also lead to lower crude oil production in Russia. “We expect Russian diesel exports to resume latest in two weeks, and likely earlier,” FGE said on Friday, adding that the gasoline ban could last longer than the diesel ban, but with a small impact on the wider gasoline market. JP Morgan and Citigroup also see a short-lived diesel ban in place. JP Morgan’s analysts see the diesel export restrictions lasting a “couple of weeks, until harvest concludes in October,” they said in a note carried by Bloomberg.
U.S. Oil And Gas Production Growth Accelerates Despite Higher Costs
Oil and gas production in the U.S. expanded at a faster pace during the third quarter of the year despite still rising costs, the latest Dallas Fed Energy Survey has shown. Costs have now been on the rise for 11 quarters in a row, the Dallas Fed said, with the situation particularly difficult for oilfield service providers. Even with rising costs, optimism in the industry increased over the third quarter, likely thanks to rising oil prices, which also probably motivated the increase in production. The optimism was evident in respondents’ input despite expectations of still higher costs next year. Speaking of prices, the respondents in the Dallas Fed survey forecast a WTI price of $87.91 per barrel on average for the final quarter of the year. This compares with an average price forecast of $77.48 in the previous quarter’s survey edition. Asked about what the effects of the energy transition would be on the industry, about a third of respondents said they expected the transition to push the price of oil higher. Another third predicted the transition will push the price of oil significantly higher. Just 9% expect the transition to make oil cheaper. These expectations suggest highly resilient oil demand in the face of EVs and other electrification efforts that are part of the transition push. Another interesting take from the survey concerned oil consumption now and in 2050. Some 28% of respondents saw oil consumption in 2050 slightly higher than current levels while 25% saw it as substantially higher. Another 25% saw 2050 oil consumption as slightly lower than current levels and only 8% expected it to be significantly lower than current levels. These expectations are particularly interesting in the context of recent reports from the International Energy Agency and other forecasters saying that peak oil demand will happen before 2030 as EVs displace internal combustion engine cars.
$100 Oil Is Bad For The Economy (And For OPEC+)
Crude oil prices are on the rise, driven by stark cutbacks imposed by Saudi Arabia and Russia, the main forces behind OPEC+. The cuts, implemented by the oil cartel in order to bolster oil prices, have been extremely successful, with barrel prices rising by a whopping 30% since June. Now, prices are hovering ever closer to the USD $100 per barrel mark, and could even surpass that hallowed and feared metric on the back of Russia and Saudi Arabia’s recent announcement that they intend to extend the current voluntary production cuts. Historically, high oil prices have been nothing but good news for the oil industry, even as it causes strife in other sectors. But this time around, it might be too much of a good thing even for Big Oil. While high oil prices can spell pure profit for the oil sectors, it’s a fine line between stimulus and disincentive, as high prices at the pump can also cause significant dips in demand as the market reels from sticker shock. For example, in June and July of last year, when oil prices hit a blistering USD $110 a barrel average, gasoline demand in the United States plummeted by 4.1% compared to the same period in the previous year when oil was selling at USD $70 per barrel. And as that $110 mark fell, so too did the size of the year-over-year demand gap, underscoring the correlation between high oil prices and consumer reticence. And that cooling effect could be even stronger this year, as families in the United States have much fewer savings to fall back on and will likely be operating on a significantly tighter budget. According to the Bank of America Institute, the average savings of U.S. households making $50,000 to $100,000 a year have fallen by half. And that worrying downward trend is about to be exacerbated for millions when student-loan repayments resume next month, representing around $100 billion a month at a national level. Indeed, unsurprisingly, the spike in oil prices has caused much hand-wringing over at the Federal Reserve. Rising oil prices were key drivers of recession in the United States in the mid-1970s, as well as the early 1980s and 1990s, as energy markets and prices at the pump “drove up inflation and robbed consumers of purchasing power.” Accordingly, fears of recession are rising in lock-step with crude benchmarks. “Policymakers will be on high alert for a gasoline-driven rise in inflation expectations in particular, as they fear that could lead to a more broad-based increase in prices,” Bloomberg reported this week. “The run-up in oil prices is at the very tip top of my worries at this point,” Mark Zandi, chief economist at Moody’s Analytics, was quoted by Bloomberg. “Anything over $100 for any length of time, and we’re going to be very sick.” And the oil industry itself is likely not immune to this sickness. While the state of savings and household economics in the United States is precarious enough, the full impact of consumer drawbacks will be actually felt in developing countries – as usual. Bucking historical trends, the value of the U.S. dollar has only continued to rise along with oil prices, putting a painful squeeze on economies with weaker currencies and lower cash flows that are nonetheless forced to buy dollar-denominated oil. This will have a serious impact on global economics and energy markets, as these developing countries include the monster markets of India and China. While the USD $100 mark is not significantly financially distinct from, say, a USD $99 per barrel mark, three digits have an outsized psychological influence on consumers and on the energy market as a whole. Crossing that line will therefore cause disproportionate shockwaves to a strapped and fragile global market that the energy industry should be prepared for in the coming months. Luckily, most experts are predicting that the foray into triple digits will be short lived, but the damage done will likely have a longer shelf life.
India imports 37.4 T Green Ammonia from Egypt through VOC Port for the first time
India has imported 37.4 tonnes of Green Ammonia from Damietta Port in Egypt for the first time, said a statement released by the Ministry of Ports, Shipping and Waterways on Wednesday. “On September 23, 2023, V.O. Chidambaranar Port Authority, Tamil Nadu successfully handled 3×20 ISO Green Ammonia Containers, weighing 37.4 tons of Green Ammonia, from Damietta Port, Egypt, for Tuticorin Alkali Chemical and Fertilizers Ltd (TFL),” said the statement. TFL plans to import 2,000 MT of Green Ammonia this year.
Russian oil sold to India at 30% above Western price cap: Traders
Russia is selling oil to India at nearly $80 per barrel, some $20 above the Western price cap, traders said and Reuters calculations showed, as tight global oil markets help Moscow generate strong appetite for its exports. Russia’s main export grade Urals has been trading above the $60 per barrel Western price cap since mid-July amid output cuts by OPEC+ producers, including Saudi Arabia and Russia. India, which is the world’s third biggest oil importer, has become the top buyer of seaborne Russian oil, mainly Urals, since 2022 after Western sanctions against Moscow. Calculated Free on Board (FOB) estimates for Urals cargoes loading from Baltic ports in October were close to $80 per barrel on Thursday for Indian customers, according to traders’ data and Reuters calculations. “Russia has low inventory levels and their production is also cut,” said an official at an Indian refiner that regularly buys Russian oil, explaining the latest jump in prices. Cuts have helped narrow discounts for Urals at Indian ports to $4-$5 per barrel versus dated Brent from $6-$7 per barrel two weeks ago, four trading sources involved in the operations said and Reuters calculations showed. The traders referred to prices for cargoes loading in late October. “Urals prices are on the rise again. Alternatives are much more expensive and not easily available,” a trader familiar with the Russian oil market said. Indian Oil Corp, Bharat Petroleum Corp, Hindustan Petroleum Corp, Mangalore Refinery and Petrochemicals Ltd, HPCL Mittal Energy Let, Reliance Industries Ltd and Nayara Energy Ltd did not respond to Reuters’ emails seeking comments. Russian Urals oil typically gives higher yields of diesel, which accounts for about two-fifths of India’s overall refined fuel consumption. Meanwhile, Russia’s decision to ban diesel and gasoline exports added to the appeal of Urals crude, amid a looming shortage of the products globally. The Western price cap on Russian oil allows buyers to use Western services such as shipping and insurance in the event that crude trades below $60 per barrel. Russian oil has drastically reduced the use of Western shipping and insurance companies since the imposition of the cap, which is also challenged by a spike in global oil prices towards $100 per barrel. Turkey was the second biggest buyer of Urals oil cargoes in September, followed by China and Bulgaria, according to preliminary LSEG data. Russian oil is also now being sold to customers in new markets like Brazil, the Indian source said.
No investment in new coal, oil, natural gas should be made: IEA
As per updated report to its Net Zero Roadmap published by International Energy Agency on Tuesday, the path to 1.5 ̊C has narrowed, but clean energy growth is keeping it open. As per the roadmap, there is no need for investment in new coal, oil and natural gas. Global carbon dioxide (CO2) emissions from the energy sector reached a new record high of 37 billion tonnes (Gt) in 2022, 1% above their pre-pandemic level, but are set to peak this decade. The speed of the roll-out of key clean energy technologies means that the IEA now projects that demand for coal, oil and natural gas will all peak this decade even without any new climate policies. Positive developments over the past two years include solar PV installations and electric car sales tracking in line with the milestones set out for them in the IEA’s 2021 Net Zero by 2050 report Growth in clean energy is the main factor behind a decline of fossil fuel demand of over 25% this decade in the NZE Scenario. Tripling global installed renewables capacity to 11 000 gigawatts by 2030 provides the largest emissions reductions to 2030 in the NZE Scenario
Revenue loss still a road block to fuel GST
Petroleum products are unlikely to be brought under the Goods and Services Tax (GST) anytime soon, as doing so can cause states’ fiscal deficit to balloon, while also widening revenue losses for the Centre, two senior government officials told Mint. The total taxation on petrol and diesel, including state-levied value-added tax (VAT) and the centre’s excise duty, comes to about 35%-50% (45%-50% for petrol and 35%-40% on diesel), one of the officials said.