Russia destroys competition in India’s lucrative oil market; controls over one-third share
India’s imports of crude oil from Russia hit a record high of 1.64 million barrels per day in March, doubling the purchases from its traditional top oil supplier, Iraq, according to a PTI report, which cited data from energy cargo tracker Vortexa. For the last six months, Russia has been India’s top supplier of crude, providing over one-third of all oil that India imported during the period. Indian refiners continue to lap up Russian crude available at a discount to other oil grades. Since the Russia-Ukraine conflict began in February 2022, Russia’s share of India’s imports has risen from less than 1% to 34%. While purchases from Russia rose marginally from February, the growth has slowed, and India’s import of Russian oil may have plateaued, the report added. Refiners’ purchases of medium-sour Russian Urals have remained steady in March, and the increase in imports is attributed to higher purchases of sweeter grades like Novy Port Light. Vortexa’s head of Asia-Pacific analysis, Serena Huang, told PTI that domestic refiners have room to increase their purchases of sweeter grades in the interest of maintaining refining runs high and diversifying its crude sources. The plateauing of India’s imports of Russian Urals could indicate a soft limit on its ability to take in more sour crude, given its need to fulfill its term contracts with Mideast Gulf producers. However, Russia is selling record amounts of crude oil to India in a bid to bridge the gap after the European Union stopped imports in December amid Western sanctions on Moscowa. Indian refiners are using UAE’s dirham to pay for oil that is imported at a price lower than USD 60. According to Vortexa, Saudi Arabia was India’s second-largest supplier of crude oil in March, selling 986,288 bpd, followed by Iraq with 821,952 bpd sales. The UAE overtook the US to become the fourth-largest supplier at 313,002 bpd, while the US supplied 136,464 bpd, down from 248,430 bpd in February. Year-on-year, imports from Iraq have fallen from 1,139,880 bpd in March 2022 to 821,952 bpd this year, and the biggest drop has been in the US imports – from 419,071 bpd to 136,464 bpd. Saudi Arabia is selling more oil as compared to 872,683 bpd it sold in March last year, the report further added.
A greener fuel alternative: LNG to transform the trucking industry in India
Governments across the world have recognised that reducing carbon emissions is essential to curtail global warming. Globally, Logistic contributes to 14%-15% of carbon emissions and in that the contribution of heavy-duty trucking is about 90%. Hence, there has been the need for alternative means of green energy that will guard the future of the planet by reducing dependence on fossil fuels in transportation sector. Thus, sustainable mobility has been a buzz word for some time now. While there has been a lot of research on the best technology that can help the industry turn a greener leaf, there emerged one answer, which is Liquefied Natural Gas or LNG. One of the main causes of hazardous emissions is heavy industrialization, which includes the logistics and transportation sector, ergo, heavy duty trucking. The trucking industry is one of the most significant polluters, producing up to 450 million TPA of CO2, as well as significant noise, particulate matter, and pollutants each year, clogging cities and endangering public health. Therefore, the whole idea of LNG trucks is poised to upend the sector and hasten the shift to “green transportation.” To put the figures in perspective, compared to diesel trucks, it emits up to 28% less carbon dioxide (CO2) and up to 30% less noise. It can also raise an organization’s scores on the environmental social governance meter. When appropriately utilised with the trained drivers, LNG truck has the potential to reduce particulate material (PPM) by up to 91%. It not only creates sizeable reduction in the quantities of sulphur and nitrogen oxides, and other substances that are detrimental to the earth’s atmosphere but also does not release soot, dust, or other particles. LNG has a lower carbon content than other types of fossil fuels. It is clear, odourless, and colourless. To combat the rapidly rising climate change, LNG is an immediate, versatile, mature, and scalable solution to make the long-haul trucking industry sustainable. It’s a cleaner fuel and greener fuel, which reduces sulphur oxide (SOX) up to 100% and nitrogen oxide (NOX) up to 59%. International success of LNG Trucks LNG Trucks has seen a great deal of success in the Chinese and European markets. The EU’s alternative fuel plan is prioritised by using an established technology for each necessity. While there are other practical and established options for short-distance transportation in metropolitan areas, LNG is the only practical, mature, viable and established option for long-distance travel. According to data from the European Alternative Fuels Observatory, it is estimated that the LNG-compatible fleet would increase at least by 3% annually. The International Energy Agency predicts that China would lead the world in the adoption of zero- and low-emission trucks, including LNG vehicles. According to sources, new regulations are also anticipated to aid in the replacement of up to 1 million heavy-duty trucks there. Policy push India is upbeat when it comes to LNG’s potential to lessen the consequences of climate change as it adheres to the Paris Agreement. India wants to transition to a gas-based economy by 2030, increasing gas’s current share of the energy mix from 6% to 15%. LNG is a vital cog to fulfil the plan. Additionally, there are existing LNG terminal infrastructure in place to handle import demands. India intends to establish 1,000 LNG retail outlets over the next five years, which would cost US$1.3 billion. It demonstrates how the country is placing more of an emphasis on alternative fuels, which is promoting the development of LNG mode.
India’s Russian oil imports now double of Iraq
India’s imports of crude oil from Russia touched a new high of 1.64 million barrels per day in March and is now double of the purchases from Iraq – the nation’s traditional top oil supplier. But the purchases appear to have plateaued as growth has slowed. Russia continued to be the single largest supplier of crude oil, which is converted into petrol and diesel at refineries, for a sixth straight month by supplying more than one-third of all oil India imported, according to energy cargo tracker Vortexa. Refiners continue to snap up plentiful Russian cargo available at a discount to other grades. From a market share of less than 1 per cent in India’s import basket before the start of the Russia-Ukraine conflict in February 2022, Russia’s share of India’s imports rose to 1.64 million barrels per day in March, taking a 34 per cent share. The purchases from Russia in March were double of 0.82 million barrels per day (bpd) of oil bought from Iraq, which has been India’s top oil supplier since 2017-18.
The Biggest Losers Of $100 Oil
The world’s biggest oil exporters will benefit from the surprise OPEC+ production cut, but if oil prices move higher from here and reach $90 or even $100 a barrel, as some analysts predict, oil importers will start to feel the pain. Brent Crude bounced back to $85, and WTI Crude hit $80 per barrel again, as the latest 1.66 million bpd of production cuts from nearly half of the OPEC+ members from May through December are expected to tighten the market in the second half of the year. Analysts, who had just slashed price forecasts in the wake of the banking sector jitters in mid-March, raised their price estimates and started talking about $100 oil again. Oil at $90 and $100 will hit the economies of the large oil importers. A renewed rise in energy prices could keep inflation in the U.S. and Europe stubbornly high and further complicate interest-rate policies of the central banks, which have just signaled that the end of the hike cycle may be near. In terms of state finances, large oil importers will not be equally hit by higher oil prices. The United States will see higher gasoline prices, but it will not be the biggest loser, at least financially, from the OPEC+ cuts. In the U.S., the loser is the Biden Administration, which has spent nearly a year trying to persuade Americans that the President has helped to lower prices at the pump, which hit a record high in early June when oil prices were at $100 per barrel in the spring of 2022 following the Russian invasion of Ukraine. “The oil market has had a few days to digest the OPEC news and speculate about the reason. This has led to the price of oil stabilizing for now,” Andrew Gross, AAA spokesperson, said this week, “but the cost of oil accounts for more than 50% of what we pay at the pump, so drivers may not catch a break at the pump any time soon.” The national average gasoline price hit $3.54 per gallon this week, the highest level since Thanksgiving, said Patrick De Haan, head of petroleum analysis at fuel-saving app GasBuddy. Increases will likely continue for the next couple of weeks with a climb to around $3.65/gal likely for now, he added. In terms of a hit to government finances from the OPEC+ cuts, the biggest losers will be Asia’s developed economies heavily dependent on oil imports, as well as emerging markets in south and Southeast Asia, which not only rely on imported energy but also have weak fiscal balances. Those are the mature economies of Japan and South Korea, and the emerging markets India and Pakistan in south Asia, as well as Argentina, Turkey, and South Africa, according to Pavel Molchanov, managing director of private investment bank Raymond James. The OPEC+ cuts and a subsequent run in oil prices to $100 is “a tax on every oil importing economy,” Molchanov told CNBC. “It’s not the U.S. that would feel the most pain from $100 oil, it would be the countries that have no domestic petroleum resources: Japan, India, Germany, France,” he added. According to Henning Gloystein, director of Eurasia Group, India’s consumption – currently at records – could also suffer in case prices rise further because even the discounted Russian crude, which India buys en masse, would see higher prices if international benchmarks make a run at $100. Traders involved in Russian oil trades told Reuters this week that after the OPEC+ cuts announcement, the price of Russia’s flagship Urals grade topped the $60 per barrel price cap level set by the G7. “If oil goes up further, even the discounted Russian crude will start to hurt India’s growth,” Gloystein told CNBC. Importing countries with weak currencies and weak state finances will also feel the pain due to the fact that oil is priced in U.S. dollars, analysts say.
OPEC’s surprise cut may put India’s resolve to fight economic agonies on greasy field
Surprise output cut by oil cartel OPEC+ has jolted global policymakers and the looming impact reverberated across asset classes as it fuelled fears of further inflationary pressures at a time of lingering recession worries and threats to the banking sector. This is increasingly worrying for India, because it buys 85% of its crude oil needs from overseas markets which stretches its trade deficit. It also causes fluctuations in global assets, including pushing US treasury yields higher, impacting investors in the Asian nation. India’s increased purchases of discounted oil from Russia may not be a strong support against the risks for the macroeconomy variables including growth, balance of payments, rupee and of course the plight of consumers. Saudi Arabia and other Organization of the Petroleum Exporting Countries oil producers on Sunday announced another production cut of around 1.16 million barrels per day. This raises the total volume of cuts from the oil cartel with Russia and other allies to 3.66 million bpd, according to Reuters calculations, which is equal to 3.7% of global demand. Russia had last month announced an oil output cut of 500,000 bpd. The surprising move that the United States called ‘inadvisable’ comes at a time when experts already feared a supply shortage in the second half of the year amid further improvement in mobility. The International Energy Agency said last month that demand in the December quarter may rise to 103.5 million bpd, up 2.2 million bpd from current levels and ahead of supply. “The OPEC+ cut in production along with higher demand in H2 — once China recovery gains momentum — could increase pressure on oil prices in the coming months. The oil market might move into a deficit in Q2 compared to the expectation of a surplus earlier,” Sakshi Gupta, Principal Economist at HDFC Bank told ET Online. However, the reduction in demand from major economies like the US and European Union, as recessionary impulses rise in H2, could cap the extent of the oil price increase. The balance of these two opposing forces should keep brent crude between a range of $80-90 pbl on average in FY24, she said. Bloomberg on Monday reported that “the implied deficit in global oil supplies in the second half of the year would be on a par with what we saw during 2021, when crude prices roughly doubled to their current level of around $80 a barrel.” Oil prices soared almost 6% in Asian trade in the morning. The West Texas Intermediate contract was up 5.74% to $80.01 a barrel, while Brent rose about 6% to $84.42. Strategists at ANZ Bank had earlier forecast OPEC to maintain its production cuts announced in late 2022 and the crude oil prices to push above $100 per barrel in the second half of the year. Goldman Sachs tweaked Brent crude’s price forecast following the output cut to $95 per barrel this year-end and $100 in December 2024. A worry for India Coming back to the impact on India and to begin with the obvious one, threats of further oil price spike fans inflation worries, making it complex for the rate-setting panel with policy choices as they were widely expected to go for a rate pause after a 25 bps hike later this week. The Reserve Bank of India had vouched to keep ‘Arjuna’s eye’ on the retail inflation rate, which has mostly refused to come below the central bank’s 6% mandated ceiling since over the last 15-16 months. Retail inflation in India stayed elevated at 6.44% in February, also driven by rising food prices. While Indians are negotiating price rises for their staple food, unseasonal rains in recent weeks and El Nino risks add to miseries of crop damage and further price spike. The inflation pressure on pulses-to-cars for Indians also comes along with pangs of the rising unemployment rate and layoffs going beyond the tech sector, rising income inequality and weakening consumption in an economy that many believe is going through a K-shaped recovery. In May last year, the Narendra Modi-led government cut taxes on retail fuel prices. However, the reduction amount lagged the tax hikes the government had undertaken earlier on several occasions when crude prices fell to a nadir, promising to lower taxes later if prices increased. Government officials recently ruled out possibilities of lowering taxes on pump prices as oil marketing companies have yet to recoup accumulated losses worth over Rs 18,000 crore. Retail petrol prices continue to be above Rs 100 per barrel in many parts of the country, including metropolitans like Kolkata, even as New Delhi and opposition-led state governments fight over who should cut taxes. A raft of taxes and cess further fuel the price of the commodity that affects the prices of what Indians eat, wear or how they commute to earn a livelihood. While passing on higher fuel prices to consumers adds to the plight of citizens, the government absorbing the high prices will widen the fiscal deficit, a key metric that New Delhi is looking to narrow and pitch for a higher sovereign rating. The oil price spike is also a risk for India’s macro variables that have shown signs of improvements recently, including a range-bound rupee (which is otherwise one of the worst performers in emerging Asia), tailwinds for current account deficit and balance of payments and the foreign exchange reserves hitting an eight-month high. India’s current account deficit eased to 2.2% of GDP in the third quarter of the last fiscal year from 3.7% in the previous fiscal. Interestingly, the current account and BoP position had benefited from lower commodity prices, increased share of Russian crude imports and higher services exports. “For India, the current account deficit for FY24 is expected at 1.6% of GDP but if the current oil price rally sustains, we could see a 0.3%-0.5% of GDP increase in the forecast. For inflation we could see an upward revision of 20-30 bps in forecasts for this fiscal,” HDFC Bank’s Gupta said.
Oil buyers reel from OPEC+ cuts as they explore alternatives
Oil refiners in Asia — like the wider crude market — have found themselves caught out by the surprise Saudi-led move to spearhead an OPEC+ production cut, and are now preparing to diversify purchases in the spot market if needed. The shock decision from Riyadh and some of its partners came just before the release of Saudi Arabian Oil Co.’s official selling prices, or OSPs, for May crude sales. Term buyers of Saudi crude expressed some concern about their ability to get the volume and type of oil they want from Aramco next month after the announcement of a 500,000 barrel-a-day curb by the Kingdom. Given the turmoil in the market, some Chinese refiners are starting to mull spot purchases from suppliers including Latin America, the US and West Africa to make up for a shortfall should OSPs from Saudi Aramco and other producers become too expensive, according to people familiar with trading strategies. Oil futures surged as the week opened following the supply cut. The plan was announced in piecemeal fashion at the weekend, with Saudi Arabia unveiling a plan for lower production that was followed by smaller moves by other nations. Riyadh, along with Moscow, are the de facto leaders of OPEC+, as the Organization of Petroleum Exporting Countries and its allies are known. Persian Gulf nations such as Saudi Arabia and Iraq sell the bulk of their oil to Asia, with China, India, Japan and South Korea as the biggest buyers. Aramco typically releases OSPs in the first five days of the month, and they are used as a benchmark by others. In a Bloomberg survey last week, six refiners and traders predicted a cut for Aramco’s OSP for its flagship Arab Light grade. The surprise move boosted Brent futures by more than 8% as the week’s trading began. It comes at a complicated juncture in the market, with concerns about weaker consumption in the US and Europe gathering pace should a recession coincide with a wave of demand-sapping refinery strikes in France and, on the upside, expectations that consumption in China will pick up. Ahead of the shock, China’s state-owned PetroChina Co. has already been tapping supplies from Canada, Colombia and Ecuador, buying at least 8 million barrels that will load this month as a new mega-refinery starts production officially in Guangdong, Bloomberg News reported last week. In India, another major consumer of Middle Eastern crude, Mukesh Surana, chief executive officer of Ratnagiri Refinery and Petrochemicals Ltd., which is building a refinery, said that OPEC+ may have decided on a supply reduction as it foresaw a weaker market. “The market is well-supplied, so there is no concern on availability,” said Surana, who’s also ex-chairman of Hindustan Petroleum Corp. “OPEC+ must be expecting a fall in prices or dip in demand, so this is probably a preemptive move to provide floor to prices. But I don’t see prices rising above $90.”
Goldman Sachs Raises Oil Price Forecast Following OPEC+ Cut
Hours after OPEC+ announced it would reduce its combined oil production by more than 1 million bpd, Goldman Sachs issued a revision of its oil price forecast, raising it to $95 from $90 at the end of the year for Brent crude. The bank also raised its Brent crude forecast for 2024, now seeing it at $100 at the end of the year from an earlier projection of $97. Last month, Goldman Sachs said that crude oil prices could rise to $107 per barrel if OPEC stood by its production targets. At the time, Brent was trading at around $84 per barrel. In that same March forecast, Goldman’s analysts predicted that rising demand from China and a slow increase in non-OPEC production could prompt the cartel to reconsider its targets and start boosting output from June onwards. Even under that scenario, however, Goldman’s analysts noted that oil prices would rise in the second half of the year. And that scenario saw 1 million bpd added to global supply. Then, at the end of March and with oil prices still quite subdued, Goldman reiterated its bullish outlook, advising traders to buy the dip while it lasted. “We would argue you are buying the dip at this point,” the banl’s head of commodities Jeffrey Currie said, adding, “I have never seen a market sell off that sharply, but retain a bullish structure.” “Today’s surprise (production) cut is consistent with the new OPEC+ doctrine to act preemptively because they can without significant losses in market share,” the investment bank said, as quoted by Reuters. OPEC+ announced an unexpected update to its production cuts, to the tune of 1.16 million bpd, with Saudi Arabia accounting for the lion’s share, at 500,000 bpd. According to unnamed sources who spoke to the Financial Times, Riyadh had been annoyed by the Biden administration’s decision to delay the start of oil purchases for the SPR.
Pakistan to get crude oil from Russia at same discounted price as India
In a significant move, Pakistan has managed to get the same discount on the import of Russian oil like other nations, including India. This was stated by Pakistan Minister of State for Petroleum Musadik Malik at a Geo News program. According to reports, the minister said that Islamabad will be given same discount like its neighboring countries on the import of Russian crude. However, Malik did not share any details regarding the agreement between the two nations
Govt extends export restrictions on petrol, diesel to ensure availability
In order to secure the availability of refined fuels for the domestic market, the government has increased restrictions on the export of diesel and petrol. This comes after the government’s export restrictions on diesel and petrol ended on Friday. India is the world’s third-largest oil consumer. The government placed a windfall tax on refined petroleum exports last year. It also required companies to sell 50 per cent of their petrol exports and 30 per cent of their diesel exports domestically until the end of FY23. The windfall tax on diesel exports was reduced to Rs 0.50 per litre and nil on jet fuel (ATF) as of March 4, this year, while the duty on domestically produced crude oil was hiked considerably. The extension may come as a shocker for refiners, particularly private firms, from purchasing Russian fuel for re-export to countries such as Europe, which have suspended purchases of refined products from Russia as a result of its invasion of Ukraine. Last year the government imposed the rare restrictions after non-state refiners Reliance Industries and Nayara Energy, key Indian buyers of discounted Russian supplies, began reaping substantial profits by aggressively boosting fuel exports instead of increasing domestic sales. As a result, state refiners were forced to fill the hole and meet domestic demand by selling petroleum at lower, government-capped rates.
Adani’s Dhamra LNG terminal in Odisha receives 1st cargo, to start gas revolution in East
Adani Group and French company TotalEnergies’ newly built Rs 60 billion LNG import facility at Dhamra on the Odisha coast has received its first ever shipment of liquefied natural gas – a fuel that will be used to make steel, produce fertilizers and turned into CNG and cooking gas, helping change the landscape of Eastern India. Qatari ship ‘Milaha Ras Laffan’ docked at Dhamra Port on April 1 morning, bringing in 2.6 trillion British thermal units of natural gas in its frozen form (LNG) which will be used to commission the facility, officials said. Commissioning and testing operations will take up to 45 days and commercial operations are expected to start thereafter. The start of the 5 million tonne per annum LNG import terminal is crucial to Prime Minister Narendra Modi’s plan to boost natural gas use in the country’s energy mix to 15 per cent by 2030 from current 6.3 per cent.