Oil Prices Diverge As Uncertainty Persists
Crude oil prices, which had been rallying on the news that Saudi Arabia will extend its production cuts, began trade on Wednesday with a slight decline before WTI jumped even higher while Brent remained in the red. Uncertainty in oil markets has traders struggling to balance economic risks with supply cuts, although those aren’t their only concerns. A new analysis by the Financial Times suggests that the rising cost of capital is keeping prices depressed while leaving the market more vulnerable to shocks in the future. On the supply side, Saudi Arabia announced earlier this week that it will extend its voluntary cut of 1 million bpd in production to August and likely beyond. While the news did not come as a surprise, the size of the cuts prompted a positive response from the market. “This additional voluntary cut comes to reinforce the precautionary efforts made by OPEC Plus countries with the aim of supporting the stability and balance of oil market,” the Saudis said on Tuesday. Meanwhile, Russia’s Deputy Prime Minister Alexander Novak said the country will reduce exports by half a million barrels daily next month. As part of the efforts to ensure a balanced market, Russia will voluntarily reduce its oil supply in August by 500,000 barrels per day by cutting its exports to global markets by that quantity,” Novak said. The combination of these reports should have sent prices higher for at least a week under normal circumstances but this week the market’s reaction to the news lasted less than a day. At the time of writing, Brent crude was trading with a decline from opening while West Texas Intermediate was up by more than a percentage point. “Oil prices came under pressure again due to lingering worries over a slowdown in the global economy and further hikes of interest rates in the United States and Europe,” a Mitsubishi JFG analyst told Reuters. Bloomberg noted that traders will be tuning into the Saudi Arabian energy minister’s address to the 8th OPEC International Seminar later today to get more insight into the group’s future plans. The Commonwealth Bank of Australia, meanwhile, pointed out that attention may soon shift to the state of global oil inventories, as a Reuters poll predicted the API will later today report a third weekly inventory decline in a row.
India mulls bilateral deals for green hydrogen-linked carbon credits
India is considering bilateral agreements with countries such as Japan to allow them to use carbon credits linked to green hydrogen production in India in exchange for investment and purchase deals, two government sources and one industry source told Reuters. New Delhi this year approved a 174.9 billion rupee ($2.13 billion) incentive plan to promote green hydrogen in a bid to cut carbon dioxide emissions and become a major exporter in the sector. Indian companies such as Reliance Industries, Indian Oil and Adani Enterprises have big plans for green hydrogen, a fuel generated using renewable energy. Trading in carbon credits – earned by projects for reduction of greenhouse gases and each equivalent to one tonne of carbon dioxide – can bring in more investments and assured offtake to India, said the sources, all of whom declined to be named as the discussions are not public. Any agreements will see overseas companies or financial agencies signing investment and purchase deals with Indian green hydrogen makers, the sources said, adding that India is already in talks with Japan. On March 17, Japan and India signed a preliminary agreement to establish a joint crediting system (JCM) for decarbonisation under Article 6 of the Paris Agreement, which is a legally binding international treaty on climate change, according to a document seen by Reuters. Article 6 provides for sharing of carbon credits between countries and private companies. This would allow buyers of green hydrogen to also get carbon emissions credit for green hydrogen production, which would otherwise be credited to the producers. Japan already has agreements with 26 countries including Bangladesh, Ethiopia, Kenya, Indonesia and Saudi Arabia. The Indian ministries of environment, renewable energy and external affairs have held discussions on the proposed carbon-trading agreements, said the sources. The government has spoken with the industry too ahead of a three-day international summit on green hydrogen on Wednesday in New Delhi, they said. The three ministries did not respond to emails seeking comment. Japan’s Indian embassy said their response might be delayed. Reuters could not immediately determine the other countries India was in talks with. “The Global North’s capacity and technology, combined with the Global South’s vast potential for green development, can lead to impactful climate action,” said Shekhar Dutt, director general of Indian industry body Solar Power Developers Association.
Russia Says It Will Reduce Oil Exports By 500,000 Bpd In August
Russia will cut its crude oil exports by 500,000 barrels per day (bpd) in August in a bid to ensure a balanced market, Russia’s Deputy Prime Minister Alexander Novak said on Monday. “As part of the efforts to ensure a balanced market, Russia will voluntarily reduce its oil supply in August by 500,000 barrels per day by cutting its exports to global markets by that quantity,” Novak said in a brief statement. The top oil official in Russia didn’t give any figures as to the volume of the Russian production and exports for August, nor the baseline from which the cut would be made. The August cut in exports would mean an additional cut in oil production by 500,000 bpd in August, Novak’s office told Russian daily Vedomosti. The Russian announcement came minutes after Saudi Arabia said it would extend its unilateral oil production cut of 1 million bpd into August. Saudi Arabia will be producing around 9 million bpd in both July and August after extending the voluntary cut into next month. “This additional voluntary cut comes to reinforce the precautionary efforts made by OPEC Plus countries with the aim of supporting the stability and balance of oil market,” Saudi Arabia said today. Russia, for its part, has enjoyed resilient crude oil exports – much higher than anticipated last year – even after the Western sanctions and the price cap on its crude and petroleum products. China and India are snapping up cheap Russian barrels, and Russian exports for most of June were still around 250,000 bpd higher compared to February, which serves as a baseline for the 500,000-bpd production cut Russia has promised this year. Today’s nearly simultaneous announcements from Russia and Saudi Arabia are noteworthy, after Saudi Energy Minister Prince Abdulaziz bin Salman said at the latest OPEC+ meeting in early June, referring to Russia, “We discussed with Russia the issue of its production and asked it to clarify its data, and we have strengthened the concept of transparency with Russia about its oil production figures.”
GAIL India to see higher realisation as PNGRB hikes tariff: Kotak Institutional Equities
With the Petroleum and Natural Gas Regulatory Board (PNGRB) raising unified tariff for the national gas grid, Kotak Institutional Equities sees higher realisation for GAIL India. PNGRB raised the unified tariff for the national gas grid by approximately 10 percent to Rs 81 per mmbtu with varying increases of 1 percent, 5 percent, and 15 percent for zones 1, 2, and 3, respectively. At revised volume projections, GAIL India can realise even higher, approximately Rs 66 per mmbtu as compared with Rs 64 per mmbtu earlier, as it now projects less volume in zone-2 and higher volume in farther zones, highlighted Kotak Institutional Equities.
Inside Qatar’s multi-billion LNG expansion
In the heart of the Arabian Gulf, amidst the shimmering skyline and ambitious visions, lies a nation that has carved its path to global prominence through its abundant natural resources. Qatar, a small peninsula, has long been synonymous with energy wealth, thanks to its vast reserves of natural gas. Now, as the world grapples with an energy crisis amid a rapidly evolving global energy market, Qatar is positioning itself as a key player in meeting the rising demand for cleaner energy sources. In recent years, Qatar has embarked on an ambitious journey to expand its gas production capabilities and significantly increase its Liquid Natural Gas (LNG) export capacity. This strategic shift not only reflects Qatar’s sharp understanding of global energy trends but also underscores its commitment to long-term economic prosperity. When the Russia-Europe conflict triggered an energy crisis, Qatar’s Energy Minister Saad Al-Kaabi declared that Qatar would stand in “solidarity with Europe” and not divert gas supplies from the continent even for financial gain. Over the past year, Qatar has fulfilled its pledge. While the US supplied more than half of Europe’s LNG imports, Qatar redirected significant flexible volumes to the European market. “As one of the largest producers of LNG, Qatar will make a significant impact on the dynamics of global LNG markets with its ambitious expansion plans,” notes Rawan Oueidat, CFA, Corporate Ratings at S&P Global Ratings. Qatar’s plan to inject billions of dollars into its LNG sector and increase gas production capacity by 64% is poised to have far-reaching consequences for global markets, she adds. Oueidat explains that by 2027, QatarEnergy plans to expand Qatar’s LNG production about 64% to 126 mtpa (equivalent to approximately 3.1 million barrels [bbl] of oil equivalent per day) from about 77 mtpa currently, through the North Field East and the North Field South expansions. “This should help the company perform its critical role for the government’s long-term development strategy and should keep positioning Qatar as a large supplier of the global gas market,” Oueidat adds. As Qatar’s LNG expansion unfolds, the global LNG markets can expect a more stable supply outlook and increased diversification. Qatar’s long-standing expertise in LNG production, coupled with its strategic vision, positions the country as a key player in meeting the world’s growing energy demands. Although recent events have demonstrated that the demand for LNG remains strong and there will be an increase in capacity in all the major markets, Deloitte’s Holliday notes that the long-term future of LNG will likely depend on external factors, including geopolitical disruptions and the energy strategies taken by some of the major economies across the globe.
LPG shipments to draw customs duty of 15% & farm cess of equal amount
The Centre has raised the basic customs duty on domestic LPG to 15% from 5%. It has also imposed an Agriculture Infrastructure and Development Cess (AIDC) of 15% on the import of LPG cylinders However, the basic customs duty hike will not be applicable to imports of liquefied propane, liquefied butane and mixture of liquefied propane and liquefied butane by Indian Oil Corporation Ltd, Hindustan Petroleum Corporation Ltd and Bharat Petroleum Corporation Ltd for supply to household domestic consumers, a Central Board of Indirect Taxes and Customs notification said. Import of domestic LPG sold to household consumers by state-owned oil marketing companies. The customs duty rate will be 15% for other importers of domestic LPG.
Oil Prices Inch Higher In Cautious Response To Saudi And Russian Cuts
Crude oil prices moved modestly higher in Asia pre-noon trade today following the news that Saudi Arabia would extend its voluntary oil production cuts through August. The Kingdom would produce some 9 million bpd of oil in August—the same level it aims for this month—and could further extend the reduction beyond August, the Saudi Press Agency reported earlier this week. On the same day, Russia announced it would cut its oil exports by half a million barrels daily next month. “As part of the efforts to ensure a balanced market, Russia will voluntarily reduce its oil supply in August by 500,000 barrels per day by cutting its exports to global markets by that quantity,” Deputy Prime Minister Alexander Novak said in a brief statement. The Saudi announcement was not unexpected, which is part of the reason it did not result in any sharp changes in oil prices. The Russian update may have surprised but not enough to start any significant price rallies. Trader sentiment appears to be strongly bearish as traders focus on economic updates from major consuming countries such as China, the United States, and the European Union. These updates seem to point to weak oil demand, prompting in turn skepticism about oil prices. “Fundamentals are not having as much influence on price direction as one would expect. Instead, the uncertain macro outlook is what the market is focused on,” Warren Patterson, the head of commodities strategy at Dutch ING, said in a note. Noting that the Saudi cut extension was largely expected and that, if the Saudis had failed to extend it this could have pushed prices lower, Patterson also said “This leaves the Saudis in a difficult spot for the next few months, as they will have to be careful how they wind down this supply cut in the current environment.”
India refiners start yuan payments for Russian oil imports: Sources
Indian refiners have begun paying for some oil imports from Russia in Chinese yuan, sources with direct knowledge of the matter said, as Western sanctions force Moscow and its customers to find alternatives to the dollar for settling payments. Western punishments over Russia’s invasion of Ukraine have shifted global trade flows for its top export, with India emerging as the largest buyer of seaborne Russian oil even as it casts about for how to pay for it amid shifting sanctions. The U.S. dollar has long been the main global oil currency, including for purchases by India, but now the yuan is playing an increasingly important role in Russia’s financial system because Moscow has been frozen out of the dollar and euro financial networks by international sanctions. China has also shifted to the yuan for most of its energy imports from Russia, which overtook Saudi Arabia to become China’s top crude supplier in the first quarter this year. “Some refiners are paying in other currencies like yuan if banks are not willing to settle trade in dollars,” said an Indian government source. Indian Oil Corp, the country’s biggest buyer of Russian crude oil, in June became the first state refiner to pay for some Russian purchases in yuan, three sources familiar with the matter said. At least two of India’s three private refiners are also paying for some Russian imports in yuan, two other sources said. All the sources declined to be named because of the sensitivity of the matter. None of India’s private refiners – Reliance Industries Ltd, Russia-backed Nayara Energy and HPCL Mittal Energy Ltd – responded to requests for comment. Indian Oil also did not reply to a request for comment. It could not immediately be determined how much Russian oil Indian refiners have bought with yuan, although Indian Oil has paid in yuan for multiple cargoes, sources said. The rise in yuan payments has given a boost to Beijing’s efforts to internationalise its currency, with Chinese banks promoting its use specifically for Russian oil trade. Since the imposition of sanctions on Moscow, Indian refiners have mostly bought Russian crude from Dubai-based traders and Russian oil companies such as Rosneft, the Litasco unit of Russian oil major Lukoil, and Gazprom Neft, according to shipping data compiled by Reuters. Indian refiners have also settled some non-dollar payments for Russian oil in the United Arab Emirates’ dirham, sources have said. “First preference is to pay in dollars but refiners sometimes pay in other currencies such as dirham and yuan when sellers ask them,” said the government source, who did not elaborate further and declined to identify any Indian companies paying in yuan for Russian oil. India’s oil and finance ministries, which had previously been trying to convince Russia to accept rupees for oil payments, did not respond to requests for comments. Reuters reported in March, citing government officials and banking sources, that India had asked banks and traders to avoid using the yuan to pay for Russian imports because of long-running political differences with China. It was not immediately clear whether recent purchases represent a change in that view. India’s imports from Russia rose to a record in May, with Russian crude oil accounting for 40% of India’s overall oil imports compared with 16.5% a year earlier, denting purchases from Iraq and Saudi Arabia. SANCTIONS MINEFIELD While Western sanctions against Moscow are not recognised by India and its purchases of Russian oil may not violate them, Indian banks are wary of clearing payments for such imports. In May, State Bank of India, the country’s top lender and a key banker for state refiners, rejected IOC’s planned payment in dollars for a cargo delivered by Rosneft, two sources said. The cargo was loaded on tanker NS Bora, handled by Dubai-based Sun Ship Management, an entity connected to Russia’s largest state shipping company, Sovcomflot , which the European Union sanctioned in February and the United Kingdom in May. In June, IOC used ICICI Bank, a private-sector Indian lender, to settle this trade with Rosneft by paying in yuan to Bank of China , two sources with direct knowledge of the matter said. One private refiner has also been using the same mechanism for payments for Russian oil, one of the sources said. Since then, IOC has used the same method to pay with yuan for other cargoes from Rosneft, one of the sources with direct knowledge of the matter said. “Whenever IOC will face problems it would push for payment in yuan,” the person said, adding that IOC had asked Rosneft to consider supplying oil in vessels not managed by sanctioned entities. Rosneft did not reply to a request for comment. Another state refiner, Bharat Petroleum Corp Ltd, is also exploring yuan payment for Russian oil, a separate source said. “Many traders (sellers) are insisting for yuan payments,” the source said. BPCL, ICICI, State Bank of India and Bank of China did not respond to requests for comment.
IEA Warns Of A Spike In Energy Prices This Winter
Energy prices could spike again this winter, the head of the International Energy Agency has warned. Speaking to the BBC, Fatih Birol said that if China’s economic recovery from the pandemic accelerated later this year and the winter in the northern hemisphere was harsher than last year’s, prices would rise. If that happens, governments would need to step in again and subsidize energy consumption, he said. “In a scenario where the Chinese economy is very strong, buys a lot of energy from the markets, and we have a harsh winter, we may see strong upward pressure under natural gas prices, which in turn will put an extra burden on consumers,” Birol told the BBC. What’s more, Birol said he could not rule out blackouts in the winter, which could be “part of the game”. Last month, the head of Germany’s energy regulator issued a similar warning for winter 2023/24. Speaking to local media, Klaus Mueller said the energy crisis in Europe was not over yet and if the winter was cold, supply could fall short of demand. “When it comes to storage (tank) filling, we are now at a different level to last year … But the biggest factor remains the weather,” Mueller said in early June, as quoted by Reuters. “The energy crisis is not over yet,” he added. China remains the single biggest factor that will influence energy prices for the remainder of the year. So far, its economic recovery has been bumpier than initially expected, and this has led to lower energy prices on world markets. But industrial activity might yet accelerate with the help of government support, and this would push prices higher for all buyers. Add to this the doubtful likelihood of a repeat of last year’s unusually warm winter and the potential for energy price—and supply—uncertainty rises significantly.
India’s Russian oil imports climb to new peak as limit nears
India imported a record volume of crude from Russia in June as the country nears the limit of its buying splurge from the major oil producer. Daily volumes climbed to 2.2 million barrels a day in June, rising for a 10th month, Viktor Katona, the head of crude analysis at Kpler told Bloomberg. According to the data from the analytics firm, Russian purchases once again exceeded the combined shipments of Saudi Arabia and Iraq. Earlier, Kpler reported that Moscow accounted for 46% of India’s oil imports in May, a staggering leap from less than 2% before the invasion of Ukraine. India has stepped in from the wings to prop up the Russian economy. India emerged as a key consumer of Russian oil following the invasion of Ukraine, but the nation’s buying could be near its limit due to infrastructure issues and the need to maintain good relations with other suppliers. Kpler said imports may dip next month because of lower Russian supply. State-owned Indian Oil has been the biggest buyer of Russian crude over the past two months, followed by Reliance Industries Ltd., according to Kpler. Overall, India’s imports of Urals hit another record of 1.5 million barrels a day in June, the analytics firm said. The average cost of Russian crude delivered to Indian shores was $68.21 a barrel — while Saudi oil stood at $86.96 – in April.