Russian Oil Exports to India May Hit New Highs as Interest Grows
India’s oil processors are open to buying even more Russian crude if the price is right, said refinery executives, potentially providing a bigger outlet for Moscow almost a year after its invasion of Ukraine The South Asian nation increased Russian oil imports in 2022, ending the year with record monthly volumes as discounted barrels enticed buying. Executives said more cheap crude may be available to India from early next month, with a European Union ban on seaborne Russian fuel shipments possibly weighing on refining rates in the key OPEC+ producer. India and China have become a crucial destination for Russian oil after many others shunned shipments due to the war in Ukraine. Indian refiners are able to turn cheap Russian crude into fuels such as diesel and then sell to regions including Europe, boosting profit margins for processors. The impending EU sanctions are expected to ratchet up demand for fuels from Asia. “It’s bit of a circular trade going on as India takes Russian crude that Western buyers don’t want and refining it into products for resale to the West,” said Mukesh Sahdev, the head of downstream oil trading at Rystad Energy. India’s crude imports rose to a record last year, although increased buying of Russian barrels has crimped flows from OPEC. Cartel members accounted for about 62% of total oil imports from April to December, compared with around 71% in the previous corresponding period, according to government data. The refinery executives said Indian processors will maintain their long-term supplies from producers such as Saudi Arabia, with any increase in Russian purchases done on a spot and opportunistic basis. Russian fuel oil flows to India have also surged, almost doubling month-on-month in December to more than 137,000 barrels a day, according to data from Kpler. The product can be used to upgrade other more valuable fuels or be used in power generation.
Why Oil Won’t Trade Above $100 This Year
After an initial dip, the oil price rally has been a steady grind upwards in the current year, with the last 12 trading days seeing 10 days of higher intraday highs and 11 days of higher intraday lows. Brent is currently trading at $87.50 per barrel (as of Jan 26 at 12:24p.m. EST)–more than $10 from this year’s low. And now commodity analysts at Standard Chartered are saying that positive speculative sentiment in the oil markets can support prices above $90/bbl. According to the experts, their proprietary crude oil money-manager positioning index increased by 23.2 w/w to -39.6, the largest w/w improvement since the price lows of April 2020. StanChart says that improving sentiment can be chalked up to trader consensus becoming less concerned about OECD recession and more convinced that the oil markets will see significant demand growth, from China and India in particular. The analysts say that the rally is likely to take Brent prices past $90/bbl, though they are not optimistic that the fundamentals are strong enough to sustain prices above USD 100/bbl. Other market indicators have mostly been positive. Implied demand for total oil products increased by 2.687 million barrels per day (mb/d) w/w, the largest weekly rise in demand since December 2021. The big jump in demand came hot on the heels of weeks of depressed demand. Implied gasoline demand increased by 496 thousand barrels per day (kb/d) w/w; distillates by 203kb/d and jet fuel by 91kb/d. Total US refinery runs increased by 0.202mb/d w/w to 14.853mb/d but remain 1.4mb/d lower than the five-year average. However, crude oil stocks rose to an 18-month high of 448.02mb, rising by 9.85mb against the five-year average and 8.41mb in absolute terms. The cumulative increase in crude oil inventories over the past two weeks is 27.37mb, 12.3mb above the five-year average. Crude stocks at Cushing, Oklahoma increased by 3.646mb w/w; the largest weekly increase since April 2020, as refinery turnaround season continues. Oil Demand To Continue Growing Perhaps the best news for long-term investors is that oil demand is unlikely to taper off any time soon. A couple of years ago, European oil and gas supermajor BP Plc. (NYSE: BP) dramatically declared that the world was already past Peak Oil demand. In the company’s 2020 Energy Outlook, chief executive Bernard Looney pledged that BP would increase its renewables spending twentyfold to $5 billion a year by 2030 and “… not enter any new countries for oil and gas exploration.” Meanwhile, its European peer Shell Plc (NYSE: SHEL) said that its oil production will decline by 18% by 2030 as the world shifts to renewable energy. When many analysts talk about Peak Oil, they are usually referring to that point in time when global oil demand enters a phase of terminal and irreversible decline. But it’s becoming increasingly clear that these European energy giants were premature with their dire predictions, with black swan events such as the Covid-19 pandemic and Russia’s war in Ukraine blindsiding them. Energy experts at Energy Intelligence Group have predicted that not only will oil demand grow in 2023 but it will continue doing so till the end of the decade. According to the analyst, global oil demand will grow to 101.2 million barrels per day in the current year and will continue growing to hit 106 mb/d by 2030. Global oil demand will grow by 1.5 mb/d in 2023, with China accounting for 650,000 b/d after the country abandoned its rigorous zero-Covid policy. Indeed, this year’s average will top the previous high of 100.6 mb/d set in 2019. While this is great news for the oil bulls, the expert says that growth will primarily be driven by petrochemicals rather than transport fuels, and has also said that its base case is a plateau rather than a decline. Actually, Energy Intelligence is not the only bull here. OPEC, Exxon Mobil (NYSE: XOM) and the Energy Information Administration (EIA), have all predicted that global oil demand will actually grow as we go along and not shrink as many analysts have forecast. Some of the biggest beneficiaries of growing oil demand will be oilfield services companies. Benchmark’s Kurt Hallead says Schlumberger Ltd (NYSE: SLB) and its peer Halliburton Company (NYSE: HAL) are set to benefit in the intermediate term from increased exploration and production spending on international and offshore projects, and become leaders in the energy transition in the long term. The analyst has launched coverage with Buy ratings with respective $65 and $50 price targets, good for 13.3% and 22.9% upside, respectively. Schlumberger has impressed after reporting fourth-quarter revenue of $7.9 billion, good for a 5% sequential increase and 27% year on year. Fourth-quarter GAAP EPS of $0.74 increased 17% sequentially and 76% year on year while EPS, excluding charges and credits, of $0.71 increased 13% sequentially and 73% year on year. The consensus for the company was for earnings to grow 66% to 68 cents per share and revenue to increase 25% to $7.81 billion. SLB CEO Olivier Le Peuch said that revenue grew across all its business divisions and geographical areas and also added there was “robust” year-end sales in the company’s digital services.
U.S. Gasoline Prices Continue To Climb
Gasoline prices continue to climb for the fourth straight week, rising 32.7 cents over the last month as crude oil prices rise, data from AAA showed on Monday. Gasoline prices are up 11.8 cents over a week ago, and are 9.4 cents higher than they were a year ago, before Russia’s “special military operation” in Ukraine. Gasoline prices are rising along with the rise in WTI crude oil prices, which are up $3 per barrel from a week ago, and up $2 per barrel from a month ago. In addition to rising crude oil prices, gasoline prices are rising as “continued refinery challenges kept supply of gasoline from rising more substantially,” Patrick DeHaan, head of petroleum analysis at GasBuddy said in a Monday note. “Macroeconomic factors have continued to weigh on oil and refined products, as strong demand in China hasn’t been slowed much by a surge in new Covid cases. In addition, releases of crude oil from the Strategic Petroleum Reserve have wrapped up. Concerns are increasing that without additional oil, supply will tighten in the weeks ahead, especially as the nation starts to move away from softer demand in the height of winter. Moving forward, it doesn’t look good for motorists, with prices likely to continue accelerating,” DeHaan added. U.S. crude oil inventories have risen over the last two weeks by leaps and bounds, while gasoline inventories also grew, but by a lesser amount. Still, gasoline inventories are below the five-year average for this time of year. GasBuddy on Monday said that its demand data shows that U.S. retail gasoline demand fell 1.4% in the last week ending on Saturday, with demand falling sharply in the Rockies. The national average for a gallon of gasoline is $3.423 per gallon as of Monday, according to AAA data.
EU Gas Price Cap Could Trigger Significant Changes In Markets
The upcoming price cap on the benchmark European gas contract could abruptly change the gas market and impact the functioning of other markets as well as financial stability, according to the European Securities and Markets Authority (ESMA). ESMA was expected to announce on Monday the assessment of the consequences of the gas price cap on the markets. “It could trigger significant and abrupt changes of the broader market environment, which could impact the orderly functioning of markets, and ultimately financial stability,” ESMA was expected to say, according to the opinion seen by Bloomberg ahead of its publication. After months of negotiations, the EU finally agreed in December to set a price cap on natural gas to protect consumers from excessive price spikes and limit inflationary pressure and industrial damage to European economies. EU energy ministers reached a political agreement on a regulation that sets a so-called “market correction mechanism,” which would come into force on February 15, 2023. The market correction mechanism will be triggered if the month-ahead price on the Title Transfer Facility (TTF), Europe’s key benchmark, exceeds $196 (180 euros) per MWh for three working days, and the month-ahead TTF price is $38 (35 euros) higher than a reference price for LNG on global markets for the same three working days. However, if risks to the security of supply occur, the European Commission will suspend the price cap rule, the EU agreed last month. “The Commission stands ready to suspend ex ante the activation of the mechanism, if an analysis from ECB, ESMA and ACER shows that the risks outweigh the benefits,” EU Energy Commissioner Kadri Simson said. Some effects could be seen only after the activation of the gas price cap, and it’s difficult to predict, ESMA says in today’s opinion, according to the draft Bloomberg has seen. “It is entirely possible that some of the potential effects in the trading and clearing environment might only unfold” after the price cap activation. Market liquidity could be reduced, says the EU authority, although significant effects could not be identified so far. In the first assessment on the EU gas price cap rule and the positions limit on the futures contracts in December, ESMA said that “Overall, the position limits set for the spot month and the other months appear to achieve a reasonable balance between the need to prevent market abuse and to ensure an orderly market and orderly settlement, while ensuring that the development of commercial activities in the underlying market and the liquidity of the Dutch TTF Gas commodity contracts are not hampered.” “ESMA however notes that setting position limits in the uncertain geopolitical environment created by the Russian invasion of Ukraine and Russia’s decision to significantly reduce delivery of natural gas to the EU may prove challenging, especially in relation to the calculation of deliverable supply,” the authority said. “ESMA also notes that the Dutch TTF Gas contracts may be impacted by the measures that may potentially be taken by the Council and the European Commission regarding the operation of the EU energy spot and derivatives markets.” The European Union Agency for the Cooperation of Energy Regulators (ACER) said last month that the EU’s price cap on natural gas is an untested tool that may not work as intended to prevent gas price spikes for European households and businesses. The gas price cap is “a difficult creature. It’s unprecedented, it’s untested,” ACER’s director Christian Zinglersen told the Financial Times in December. Zinglersen also noted that he would be “reluctant to rely on this gas price cap” to protect EU consumers from price spikes. The benchmark EU gas price at the Dutch TTF is currently well below the price level at which the cap would be activated, trading below $76 (70 euros) per MWh on Friday. Prices slumped last week to levels last seen before the Russian invasion of Ukraine due to milder weather at the start of the year, LNG inflows, and still comfortable EU gas storage levels. Yet, analysts say the market is ripe for further volatility in the coming months.
Record oil supply will not meet 2023 demand surge: IEA
Oil prices continued to remain volatile at the start of 2023 and went below the $80 per barrel mark after steep declines on the first two consecutive days at the start of the year. Record oil supply of 101.1 million barrels per day in 2023 will not meet surging global demand, leading to a significant shortfall in availability by the end of 2023, according to the International Energy agency. In its latest forecast, the IEA has projected demand to rise by 1.9 million barrels per day to 101.7 million barrels per day (bpd) this year, an upgrade from its previous forecast for a 1.7 million bpd increase, and supply to increase by one million bpd to 101.1 million bpd. These compare with respective forecasts of 101.6 million bpd and 100.8 million bpd made in December. The Paris-based EIA significantly lowered its price forecast for Brent crude oil for 2023 and 2024. The agency in its short term energy outlook lowered Brent price forecast to $83.1 per barrel for 2023 versus its previous forecast of $92.3 per barrel. This compares to the 2022 average price of $100.94 per barrel i.e. a decline of 18 per cent in 2023. The forecast for 2024 was further lower at $77.57, a y-o-y decline of 6.6 per cent. In terms of monthly trend, Brent crude averaged at $80.4 during December-2022 after witnessing a monthly decline of 11.8 per cent, the biggest decline since April-2020. The decline in Opec crude basket was similar at 11.2 per cent to average at $79.7 per barrel. According to Kamco Invest, oil prices continued to remain volatile at the start of 2023 and went below the $80 mark after steep declines on the first two consecutive days at the start of the year that resulted in a weekly decline of 8.5 per cent during the first week of the year. The decline was led by fears of an economic slowdown after several warnings of a recession in 2023 due to a slowdown in the US, the EU and China. The IEA’s monthly Oil Market Report (OMR) forecast shows supply outstripping demand by nearly one million bpd in the current quarter and in the second quarter again marginally, before a flip. Demand in the third and fourth quarters will be 1.6 million bpd and 2.4 million bpd, respectively, above supply, it said. The IEA cautioned that the timing and pace of a Chinese demand recovery and of Russian supply resilience will affect its forecasts. The former is surrounded by even more uncertainty than usual but the IEA doubts there will be a big upward revision given a “persistently dim macroeconomic outlook” in the country. But China will overtake India to become the leader in oil demand growth, the IEA added, slightly raising its full-year forecast for that to 850,000 b/d. Around 75 per cent of the rise in 2023 demand comes from non-OECD regions. Growth in developed regions will be just 470,000bpd, down from 1.1 million bpd in 2022. The IEA said OECD demand in the final three months of last year fell by 910,000bpd on the year. The IEA upgraded its projection for supply growth by 230,000 bpd from its December OMR, fuelled by producing regions outside the Opec+ group. The US, Brazil, Norway, Canada and Guyana will all contribute to a 1.9 million bpd rise in supply from outside the producer alliance. Opec+ supply will fall by 870,000 bpd because of restrictions on Russia. Excluding that country, Opec+ supply will rise by 460,000 bpd. The IEA called Russia a wild card, noting that production merely dipped in December when the EU import ban and G7-led price cap came into force. But it said this will change after the EU bans imports of Russian refined products in early February, when Moscow’s apparent move to increase refinery throughput and store significant amounts of oil will be challenged. The IEA forecasts that around 1.6 million bpd of Russian production will be shut in by the end of the first quarter, compared with pre-war levels, and this will reduce output to 9.7 million bpd in 2023, down by 1.3 million bpd from 2022. According to the IEA, global stocks rose sharply by 79.1 million barrels in November to the highest in 13 months buoyed by the amount of oil on the water as Russian exports were diverted further afield.
ONGC, TotalEnergies plan joint venture
State-run energy major ONGC plans to tie up with French giant TotalEnergies for exploration and production of oil and gas in the Andaman islands, said Sushma Rawat, director, exploration at ONGC Ltd. In an interview, Rawat said that prospective hydrocarbon blocks are expected to be auctioned at the next round of auctions under the Open Acreage Licensing Programme for which both companies may bid as a joint venture. “For deepwater, talks are underway with Total. Andamans, which is coming up, is mostly deepwater. The government has an Island Exploration Project, a lot of seismic data is being acquired in the Andamans which will be processed and analysed. Within a month we will know whether Total would be coming there with us and in what way. With Total we still have to sign an MoU. The talks are in the final stages,” she added.
India gas imports to rise on lower global prices – Petronet
India’s liquefied natural gas (LNG) imports are set to recover as global prices ease, the chief executive of the country’s top gas importer Petronet LNG Ltd said. Asian spot LNG prices have fallen due to mild weather in Europe and ample inventories, from an average of $30-$35 per million British thermal units (mmBtu) in the December quarter to around $17/mmBtus, A.K. Singh said. India wants to raise the share of gas in its energy mix to 15% by 2030 from 6.2% at present. However, a spike in global gas prices last year, triggered by the Russia-Ukraine conflict, cut demand for cleaner fuel from price-sensitive Indian customers. “Now the export cargoes are hovering at $17 (million British thermal units). We definitely expect that we will get the movement of more cargoes coming to our country.” Singh said at the company’s earnings press conference. “In previous months it was a lot of volatility,” he added. India’s gas imports in October and November declined by about a fifth to about 1.8 million tonnes from this fiscal year’s peak of 2.2 million tonnes in May, according to government data. Data for December has not yet been released. Due to low local demand, Petronet operated its 17.5 million tonnes a year Dahej LNG terminal on the west coast at 68% capacity in the December quarter. The capacity use has improved to 81% and is expected to rise further as global prices ease, Singh said. Petronet supplies gas, mostly procured under long-term deals with Qatar and Australia, to Indian energy companies for sale to end-users. These companies have also booked capacity at Dahej to import gas directly. In the previous quarter, Petronet levied an 8.5 billion rupee ($104.80 million) penalty on Indian companies for not taking the committed volumes of gas from its Dahej import facility, Singh said.
China Is Still The Biggest Driver Of Oil Prices
Oil prices settled on Thursday at their highest level since December 1 as the market is turning bullish on China’s oil demand this year. The Chinese reopening is set to drive oil demand growth and push oil higher if most of the developed economies manage to avoid recessions, analysts say. China likely accelerated the pace of crude oil stockpiling last year, according to estimates by Reuters’ Asia Commodities and Energy Columnist Clyde Russell based on Chinese data on imports, domestic production, and refinery processing rates. More stocks in commercial and strategic storage could mean that China’s imports may not be as strong as anticipated. But it could also mean that refiners are preparing for a surge in demand in the coming months once the exit Covid wave after the restrictions were dropped fades. Since China doesn’t report crude oil inventories, it’s all guesswork as to just how much crude the country has stashed over the past year. As China reopened its borders in early January, authorities issued a massive batch of allowances for independent refiners to import crude oil. There is one certainty in the oil markets – the economic growth in China has been and will continue to be a key factor in global oil demand, capable of moving oil prices in either direction. Over the past few days, the key driver of oil prices was the Chinese reopening and the improved outlook on Chinese demand due to said reopening. OPEC and the International Energy Agency (IEA) said in their respective monthly reports this week that the prospects of global oil demand were improving thanks to the Chinese exit from the ‘zero Covid’ policy. China’s reopening is set to drive global oil demand to a record high of 101.7 million barrels per day (bpd) this year, up by 1.9 million bpd from 2022, the IEA said in its report, raising its demand growth estimate for 2023 by 200,000 bpd from 1.7 million bpd growth expected in December. “Two wild cards dominate the 2023 oil market outlook: Russia and China,” the IEA said in its Oil Market Report. “China will drive nearly half this global demand growth even as the shape and speed of its reopening remains uncertain.” OPEC also expressed more optimism about Chinese oil demand and the global economy this year in its Monthly Oil Market Report (MOMR). China’s reopening is set to push demand higher, and “In addition, China’s plans to expand fiscal spending to aid the economic recovery is likely to support oil demand in manufacturing, construction and mobility,” OPEC said. Globally, economies look more resilient than previously expected, the cartel said. “The global momentum in 4Q22 appears stronger than previously expected, potentially providing a sound base for the year 2023, especially in the OECD economies. The 2022 growth in both Euro-zone and US has surpassed previous forecasts,” OPEC noted. Moreover, the U.S. looks to have more chances to avoid a recession this year. “Upside potential may come from the US Federal Reserve successfully managing a soft landing in the US. This is the most likely outcome, given the expected slowdown in inflation and the sufficient underlying demand dynamic,” according to the organization. Fears of recession may have subsided, but the oil market continues to react with selloffs to every weak economic data point from the United States, Europe, or China. Nevertheless, market sentiment has turned bullish on China over the past two weeks, which resulted in rising oil prices. This highlights the fact that the Chinese economy and oil demand will continue to drive oil markets this year, alongside economic performance elsewhere, the extent of Russian oil supply losses, and the policy of the OPEC+ group to balance the market and support prices.
25 GW Gas-based power plant capacity idle in India due to price fluctuation: VK Saraswat
Some 25GW gas-based power plants are lying idle in India due to price fluctuations, according to VK Saraswat, member of Niti Aayog. According to him, India cannot be an entirely gas based economy due to a higher degree of import dependence. Saraswat was in Uvarsad, Gandhinagar on Saturday to deliver the keynote address at the opening ceremony of ChhatrNiti Aayog organised by Karnavati University. “Even though gas is widely used today for piped natural gas, compressed natural gas and other applications, gas cannot be the solution to India’s energy transition needs. Gas resources from Krishna Basin and other basins are not affordable. Assuming that we will have a huge gas resource in India, we set up a large number of gas based power plants. However, we must realise 25GW of gas-based plants are currently idle due to price fluctuations,” Saraswat explained, speaking to TOI after the event. “In recent times, we can blame the Russia-Ukraine war for the fluctuation in gas prices. Earlier, gas was so unaffordable that even fertiliser plants could not run efficiently,” he explained.
Petroleum Minister asks oil companies to reduce petrol-diesel prices
Union Petroleum and Natural Gas Minister Hardeep Singh Puri on Sunday asked Oil Marketing Companies (OMCs) to cut the retail prices of petrol and diesel if the crude oil prices in the international market come down and also if OMCs under recovery come down. Puri was talking to the media during a function to flag wave a CNG-driven boat race on the river Ganga here. This function was organized as a run-up to India Energy week which will take place next month in Bengaluru. “Oil marketing companies should cut down prices once international prices are stabilised and they have managed to recover under-recovery,” he said. In layman’s parlance, under-recovery refers to selling fuel below the cost prices. Oil Marketing Companies incurred a loss of Rs 212 billion on account of selling petrol and diesel below the cost price. Though Oil Marketing Companies are free to revise product prices based on economics, in practical terms political considerations are also important in the revision of prices. Hardeep Singh Puri also claimed that prices of petrol and diesel have been under check, despite volatile prices of the Indian crude basket. Puri said, “One reason for keeping prices of petrol and diesel under check is the reduction in taxes. The central government revised the taxes twice between November 2021 and May 2022. Prices of petrol and diesel have not been revised since May 22, 2022, when the Finance Ministry cut Central Excise duty followed by a reduction in sales tax by many States.” “However, during this period, on one hand, prices of brent crude have come down to USD 88 a barrel now from a high of USD 139 in March, on the other hand, India is increasing imports from Russia. Both of these have a combined impact on the overall fuel import bill, but losses are still there which seems to be the reason why oil marketing companies are not able to cut the prices.” A senior Oil Marketing company said, “We are earning a gross profit on petrol and it is in single digit. However, during the last 15 days, due to cracks, petrol profitability has been affected. However, diesel sale is still on gross loss and it is in double-digit.” The gross amount of loss or profit for the third quarter will be known, once the oil market companies will declare their result in the coming days.