Venezuela loads first crude for the US oil major Chevron after lifting of sanctions
This weekend, Venezuela began loading 250,000 barrels of Boscan heavy crude in Bajo Grande, Zulia state, for export to the United States under loosened sanctions that let Chevron extend its commerce. This would be the first sale of Venezuelan crude to the United States in four years since sanctions were strengthened in the wake of a 2018 presidential election that the United States claimed was manipulated in favour of Nicolas Maduro. According to unnamed company sources and onlookers, the Beauty One tanker is slated to complete loading and depart for a US refinery on January 2. It arrived at the port of Zulia eight days after the December 21 restart of Chevron’s Petroboscan asphaltic crude project with state-owned PdV in the same state, which is now producing approximately 10,000 b/d. Chevron accumulated crude reserves in Venezuela throughout the four years of sanctions against Maduro. Ship tracking data does not corroborate that Chevron is the charterer of the Beauty One, a 1993-built older tanker, but many sources have confirmed that it is loading for export. In recent months, the tanker has primarily made cabotage voyages in Venezuela. Neither Chevron nor PdV responded to a request for comment immediately. The Beauty One is one of three ships to have arrived since December 29 as a result of the easing of sanctions. The Chevron-chartered UACC Eagle is en route to the Jose terminal in Venezuela on January 5 with 620,400 barrels of naphtha, according to Vortexa data. This is a significant diluent for extra-heavy Orinoco crude. Venezuela has been receiving naphtha from Iran as part of an oil cooperation agreement. Sources and ship monitoring data indicated that the Caribbean Voyager was planned to load upgraded Merey 16 or similar petroleum in eastern Venezuela’s Jose terminal beginning this weekend for Chevron.
Petrol export by OMCs rose 142% between 2020-21 and 2021-22
The export of petrol by Indian oil marketing companies (OMCs) rose 142% in a year between 2020-21 and 2021-22, while there was a minuscule rise of less than 1% in the export of diesel during the same period. According to official figures, the OMCs exported 668 thousand metric tonnes (TMT) of petrol in 2021-22, which was 142% more than 276 TMT of petrol exported by the country in 2020-21. In 2020-21, the OMCs exported 1,985 TMT of diesel, while in 2021-22, it exported 1,994 TMT of diesel, a growth of less than 1% over the previous year. The three OMCs, namely the Indian Oil Corporation, Hindustan Petroleum, and Bharat Petroleum Corporation, export petrol and diesel to several nations across the world. OMCs export surplus petrol and diesel to other countries only after meeting domestic demand in the country.
The Oil Market Crisis Sparked By Russia’s Invasion Is Nearing Its End
Russia’s invasion of Ukraine back in February triggered a major market crisis. Oil and gas prices soared to multi-decade highs; coal prices grew by nearly 70%, global wheat prices increased by over 60% while prices of metals exported by Russia, such as nickel, palladium, and aluminum all increased significantly. Meanwhile, the euro fell below parity with the dollar for the first time in over two decades on fears that the war would trigger a global economic crisis. Now, however, there are growing signs that the disruption could be coming to an end, with crude oil, natural gas, and food prices having all fallen back to prewar levels while the euro has staged a 7% rally against the dollar over the past three months to $1.06. Energy Prices Back To Pre-War Levels Benchmark oil prices soared to just under $130 a barrel in March just weeks after Russia invaded Ukraine. Russia was the second largest exporter of crude, and sanctions against the country squeezed supply and drove prices up. But oil prices have been on a steady decline since July and are currently trading around their pre-war level of $80 per barrel. “In large part, oil prices have declined in recent months due to recessionary fears and increasing interest rates in many developed economies. A worsening of the situation in Ukraine could also provide bearish signals to the market as a result of the global economic slowdown,” Jorge Leon, a senior oil markets research strategist at Rystad Energy, told Yahoo News. There are fears that oil prices could fall further due to surging Covid cases in China. Chinese manufacturing activity dropped for a third consecutive month in December, increasing the probability that oil demand could weaken in the early months of the new year. ‘‘China has slowed down dramatically in 2022 because of this tight zero COVID policy. For the first time in 40 years China’s growth in 2022 is likely to be at or below global growth. That has never happened before. And looking in to next year for three, four, five, six months the relaxation of COVID restrictions will mean bush fire COVID cases throughout China,” Kristalina Georgieva, managing director of the International Monetary Fund (IMF), has told the CBS program. Credit Suisse says the selloff is not yet over. “The market remains well below its 55-Day Moving Average and 200 DMA at 89.01 and 100.67, and with medium-term momentum declining and global growth concerns looming, we think further weakness is likely to follow. Brent is likely in due course to see further downside towards the 61.8% retracement at 63.02, where we would have higher confidence of a more stable floor and for a consolidation phase to emerge.” Another bearish signal: crude futures markets have gone into backwardation. Contango and backwardation are terms commonly used in commodity futures markets. A contango market is one where futures contracts trade at a premium to the spot price. For example, if the price of a WTI crude oil contract today is $60 per barrel but the delivery price in six months is $65, then the market is in contango. In the reverse scenario, suppose the price of a WTI crude oil contract today is $60 per barrel but the delivery price six months down the line is $55, then the market is said to be in backwardation. A simple way to think of contango and backwardation is: Contango is a situation where the market believes the future price is set to be more expensive than the current spot price, whereas backwardation is said to occur when the market anticipates the future price to be less expensive than the current spot price. The current situation, therefore, means that oil traders believe that Brent prices will continue falling. Analysts Are All Over the Place In this market, however, there are just as many bulls as bears, and the handle on the future is slippery, at best. Some predict that global oil demand could soar as much as 4% in the coming year if the world manages to fully emerge from Covid restrictions. Hedge fund trader Pierre Andurand has told Bloomberg that oil demand may increase by 3 million to 4 million barrels a day in 2023 helped by a switch to oil from gas. Likewise, some analysts believe that many of the headwinds that have cut short the oil price rally this year, including China’s zero-Covid policy and the coordinated SPR releases by several governments, will no longer be there in 2023. Coupled with sanctions on Russia’s oil and gas, this should elevate oil prices. He has also predicted that the energy sector will continue to outperform other market sectors due to the high demand for oil and gas stocks.
Russia And Iran Look To Strengthen Grip On Global Oil Markets
When a senior government minister of either Iran or Russia says that the two countries are now experiencing a ‘golden age’ in developing relations between them then it’s a pretty safe bet that one or more countries somewhere are going to be in serious trouble pretty soon. Iranian Petroleum Minister, Javad Owji’s, comment was echoed by senior Russian officials, which makes matters much worse for everyone else, as did his additional statement that the authorities of the two countries are “determined to strengthen cooperation in all sectors”. Aside from the military cooperation between the two that the world has seen recently in the use of Iranian drones by Russia on Ukrainian civilian targets and before that the use of Russian arms by Iran on Syrian civilian targets, among others, there are several areas of cooperation planned that pertain specifically to the oil and gas sector. Over and above the limitless possibilities for evading sanctions on Russia or Iran that Iran’s influence over Iraq affords Tehran and Moscow, as analysed in depth in my latest book on the global oil markets, there is the stranglehold that the two energy superpowers can place over much of the world’s supply of oil and gas should they wish to do so, which they do. Iran has an estimated 157 billion barrels of proven crude oil reserves, nearly 10 percent of the world’s total and 13 percent of those held by OPEC. As great as its oil reserves are, its gas reserves are even greater, with Iran having estimated proven natural gas reserves of 1,193 trillion cubic feet (Tcf), second only to Russia, 17 percent of the world’s total and more than one-third of OPEC’s. Russia, aside from holding the world’s largest natural gas reserves at 1,688 Tcf, has at least 80 billion barrels of proved oil reserves and has been a top three producer of crude oil for many years, easily able to produce at least 10.5 million barrels per day of petroleum and other liquid fuels. One of the factors that has held back crude oil production in Iran has been the low yield from its oil fields, which has hovered between the four to five percent range for years. This is not a function of any true difficulty in recovery – in fact, crude oil from the majority of Iran’s oilfields is as easy as from any other of the world’s easiest to produce oilfields in Iraq or Saudi Arabia, as attested to by the US$1-2 pb lifting cost in the country. Rather, this low recovery rate is a function of sanctions that have been in place one way or another since the U.S. Embassy hostage siege that began in 1979. These sanctions were stepped up again after the U.S.’s unilateral withdrawal form the Joint Comprehensive Plan of Action (‘JCPOA’, colloquially the ‘nuclear deal’) in May 2018. These sanctions have cut Iran off from the latest technology and equipment needed to lift the recovery rate at its oilfields. It has broadly been left to companies associated with Iran’s Islamic Revolutionary Guard Corps to do their best with the equipment they have. It should be noted that during the period leading up to the JCPOA being officially announced on 14 July 2015, a top international oil company was on the verge of signing a development deal with Iran, in which it foresaw no problem in increasing the recovery rate from its oilfields to at least 12.5 percent within 12 months and to at least 25 percent in the 12 months after that. With unfettered access now to Russian technology and equipment, Iran should be able to significantly increase the recovery rate at its oilfields by far more than it has been able to do for years. The preparations for such an eventuality were laid by Russia and Iran back before Russia invaded Ukraine on 24 February 2022. Just over one month before, as analysed in depth by my article for OilPrice.com back then, Iranian President, Ebrahim Raisi, visited his counterpart in Moscow, the first visit of an Iranian president to Russia in almost five years. According to comments from Iran’s Petroleum Minister, Javad Owji, several parts of the rolling 20-year cooperation deal between Russia and Iran that relate to the development of oil and gas fields, construction of petro-refineries, and technology transfer were signed. This groundwork was then built out by a reciprocal visit to Tehran in July by Russian President, Vladimir Putin. This set the seal on a US$40 billion wide-ranging memorandum of understanding (MoU) signed just a few days before between the National Iranian Oil Company (NIOC) and Russian gas behemoth, Gazprom. Among other deals contained in the MoU, Gazprom pledged its full assistance to the NIOC in the US$10 billion development of the Kish and North Pars gas fields with a view to their producing more than 10 million cubic metres of gas per day. The MoU also detailed a US$15 billion project to increase pressure in the supergiant South Pars gas field on the maritime border between Iran and Qatar. Gazprom further pledged assistance in the completion of various liquefied natural gas projects and the construction of gas export pipelines. Prior to the U.S. withdrawal from the JCPOA in 2018, Moscow was on the verge of taking over several new major oil and gas projects in Iran. Initial agreements had been signed by GazpromNeft for feasibility studies for the Changouleh and Cheshmeh-Khosh oilfields, Zarubezhneft for the Aban and Paydar Gharb fields and Tatneft for the Dehloran field. These were on top of the previous MoU signed by Lukoil and the NIOC for studies of the Ab Teymour and Mansouri oil fields, resulting in Russian firms being assigned seven field studies, the most of any country to that point. These deals were only a part of a very wide-ranging 22-point MoU signed by Iran’s deputy petroleum minister, Amir-Hossein Zamaninia, and Russia’s deputy energy minister, Kirill Molodtsov, at the time. This included the transfer of gas, petrochemical swap operations, research
Germany Stops Importing Oil From Russia Via Pipeline
Germany halted imports of Russian oil via pipeline on January 1, following through on a previous pledge to stop buying Russian pipeline crude despite the fact that the EU embargo exempts pipeline flows from Russia to Europe. The EU embargo on imports of Russian crude oil by sea came into effect on December 5, but pipeline oil flows to landlocked EU member states are exempt from the ban. Nevertheless, Germany and Poland have said they will halt imports of Russian crude via the Druzhba pipeline as of January 1. The halting of pipeline imports will affect the refineries in Schwedt, in the state of Brandenburg, and in Leuna, and Saxony-Anhalt, which supply eastern Germany with fuel, according to the German press agency DPA. Germany’s government has said that alternative supply to those refineries has been procured, DPA reports. The German government put the local business of Russia’s oil giant Rosneft under trusteeship in September, handing control over the Schwedt refinery to the country’s energy market regulator. Schwedt is the fourth-largest refinery in Germany, it was 54 percent owned by the Russian state oil giant, and it received its crude from the Druzhba pipeline. The refinery supplies 90% of the fuel in Berlin. Last month, Germany and Poland reached an agreement that would see Poland supply enough crude to the Schwedt refinery to run at a capacity of 70% from January, meaning it will no longer need Russian crude. Russia, for its part, claims that it had received orders for crude oil purchases from both Germany and Poland, despite the pledge of the two countries not to buy Russian crude via the Druzhba pipeline. Russia’s pipeline operator Transneft has received orders for crude oil purchases from Germany and Poland, Transneft’s CEO Nikolay Tokarev told Russian media last month. Europe will find it difficult to replace Russian crude oil and product supply once the full effect of the EU embargoes on Russian petroleum products is felt, Russian Deputy Prime Minister Alexander Novak said last week.
Tumultuous year for oil and gas industry amid Russia-Ukraine war, demand stress
The year 2022 has been turbulent for the oil and gas industry around the world amid Russia’s invasion of Ukraine, record-high inflation globally, supply constraints and COVID-19 lockdowns in China. The war between Russia and Ukraine led to alteration in the trade equations between almost all the countries as the European Union and the West imposed sanctions on oil exports from Russia, the second-largest exporter of crude oil. Adding to that, supply cuts of from Organisation of Petroleum Exporting Countries and allies, commonly known as OPEC+, and rising inflation led to high energy prices. Fluctuations in oil prices Prices of crude oil in 2022 swung from the 14-year high of $140 per barrel in March to around $80 per barrel in December. In the first half of the year, prices were majorly dictated by the developments in the Russia-Ukraine war. Oil prices skyrocketed after the US and the EU decided to impose sanctions on Moscow, leading to worries of supply shortages. Responding to the sanctions, Russia began diverting oil supplies from its traditional markets and started selling oil at discounted prices to countries in Asia such as China and India. India has saved billions of rupees buying discounted Russian crude oil and also saved on the outflow of dollars at a time when the local currency has been weak. According to industry estimates, India is estimated to have saved over Rs 350 billion by importing cheap Russian crude since February. In 2022, prices have also been volatile due to the cuts in oil production imposed by the group of oil producing nations. Despite requests from several world leaders to pump more oil to bring down prices, OPEC+ maintained its stand over gradual increase in output. G7 price cap To hamper Russia’s largest source of income, the G7 countries — Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, with the European Union as a “non-enumerated member”—imposed a price cap of $60 per barrel on exports of Russian oil. According to the G7 decision, companies providing transportation services, such as shipping and insurance will only handle Russian cargo if oil is purchased below or at the price cap. Meanwhile, Russia said that it will not supply oil to the countries that agree with the price cap. Demand stress The price of oil has tapered off in the recent months due to deteriorating demand amid global inflation and recession fears. Key central banks around the world have hiked interest rates to tame record-high inflation. Oil prices have further tumbled owing to the COVID-19 curbs imposed in China— the world’s largest importer of oil—denting the fuel demand. Energy experts say that benchmark Brent oil prices are seen rising from current levels by March but are unlikely to breach $100 a barrel, according to a poll conducted by Moneycontrol. “Oil has been one of the most volatile assets, with the year 2022 starting off a with strong bullish momentum which had been building throughout most of 2021. But (it) saw a huge selling pressure as macro-economic headwinds took centrestage and apprehension about OPEC+ cuts and EU embargoes faded. Some of the geopolitical risk that sent oil higher earlier this year, specifically the Ukraine conflict, has also eased of late. Instead, investors main worries remain over a weakening economic backdrop and low liquidity across markets. Investors remain unimpressed by the G7 oil price cap that has not led to any anticipated supply shortage,” said Navneet Damani, Sr. VP, Currency & Commodity, Motilal Oswal Financial Services. Impact on India India, which is dependent on imports for around 85 percent of its oil needs, has been unable to escape the impact of fluctuations in global oil prices. Retail fuel prices rose several times in the country in 2022 in line with the surge in crude oil prices. In March, price of petrol crossed Rs 100 per litre-mark in Delhi. Retail prices of petrol and diesel have not come down despite of the decline in crude oil prices, as the oil marketing companies need more time to recoup losses they have incurred when the prices had skyrocketed. Surge in prices of natural gas Similar to crude oil prices, natural gas prices also increased in 2022 due to Russia’s invasion of Ukraine. Gas prices were also high before the war begun as demand picked up after COVID-19 restrictions were lifted. “Prices were high even before COVID-19 and Russia-Ukraine war. Everybody thought gas is a transition fuel and renewables will take over. So people did not invest in gas or LNG infrastructure which resulted in shortage of capacity in production. This did not reflect during COVID-19 because demand was less but as soon as COVID-19 was over, demand picked up and prices went up,” Rajesh Kumar Mediratta, Managing Director & CEO told Moneycontrol on December 23. “We thought prices would come down in 2022 but because of the war it did not come down, rather it picked up and went up to $60, $70 per MMBtu,” he added. US natural gas prices spiked to 14-year high in August at $9.33 per million British thermal unit (BTU)
India becomes Russia’s key oil export market as fallout of Ukraine war
According to Hellenic Shipping News, until December 26, Urals loadings to Asia were 3.5 million tonnes, including 2.4 million tonnes for India or 40 per cent of the month’s overall loadings of the grade from Russia’s ports. But this could rise further this year. India’s oil imports from Russia in December “is on track for a record, even as weaker Asian demand and a European Union oil embargo has lowered overall volumes, according to traders, Refinitiv data and Reuters calculations, it said. Indian authorities have clarified that the domestic market and its needs will drive oil imports with an eye on keeping inflation in check. Last month at the conference of curtain raiser for India Energy Week 2023, Union Petroleum and Natural Gas Minister Hardeep Singh Puri said that India which was earlier buying crude from 29 countries is now sourcing oil from 39 countries. “We are ready to buy from anywhere,” he said. “We used to buy very limited quantities of oil from Russia up to March 31, 2020, to 0.2 per cent, now Russia has become a prominent supplier along with UAE, Saudi Arabia, Iraq and Kuwait,” the minister said. The G7 imposed a price cap of $ 60 on Russian oil after Moscow’s Ukraine invasion. Meanwhile Moscow has also reached out to New Delhi exploring opportunities for purchase for at least 500 different products which include parts for cars, aircraft and trains.
Natural Gas Prices Set For A Sustained Rally In 2023
Despite the recent drop in natural gas prices in Europe thanks to unseasonably warm weather, the commodity is set to end 2022 with a significant overall gain. What’s more, per a Reuters report, gas investors could look forward to another strong year in 2023 as most signs point to a sustained rally in natural gas in an environment of tight supply and solid demand. “From a fundamental perspective, the setup for most commodities next year is more bullish than it has been at any point since we first highlighted the supercycle in October 2020,” Reuters quoted a Goldman Sachs commodities outlook today. The rally in gas prices began last year as demand in Europe began to rise on the underperformance on renewables while supply had to catch up. The situation escalated massively this year after Russia’s invasion of Ukraine and the EU’s response, which took the form of a series of sanction packages. In its turn, Russia started cutting gas supplies to Europe and later in the year, after the sabotage of Nord Stream 1 by a party that remains unnamed despite the conclusion of the investigation, the only conduit for Russian gas for Europe was the pipeline that goes through Ukraine. Earlier this month, Russia’s Deputy Prime Minister Alexander Novak said Moscow was ready to resume gas flows via the Yamal-Europe pipeline as well. “The European market remains relevant, as the gas shortage persists, and we have every opportunity to resume supplies,” Novak said, as quoted by TASS. “For example, the Yamal-Europe Pipeline, which was stopped for political reasons, remains unused,” he added. Besides gas, the other winner this year in commodities was coal. Contrary to expectations, the dirtiest fossil fuel made a veritable comeback in 2022 because of the European gas crisis and the limited supply of gas and consumption increased significantly, as did prices.
IOC’s Paradip-Hyderabad pipeline project to end by Dec 2023
The Paradip-Hyderabad Pipeline Project (PHPL) by Indian Oil Corporation Ltd. (IOCL) will likely be operational by the end of next year. Speaking to the media, IOCL executive director and Head for AP and Telangana, B. Anil Kumar said that the business will invest Rs 33.38 billion to carry out this project for improved fuel deliveries to its retail outlets in three states This project connects the Hyderabad refinery in Telangana to the Paradip refinery in Odisha via Andhra Pradesh. Although PHPL was expected to be operational by 2020, land acquisition issues delayed its progress Anil Kumar also said that almost 87 percent of the construction is complete, and the works are going on in full swing adding that it shall be commissioned by December 2023.
IOC’s Rs. 6.11 billion Malkapur terminal likely to go on stream in 2023
A petroleum terminal being set up by Indian Oil Corporation in Malkapur, near Hyderabad, with an investment of Rs. 6.11 billion, is likely to go on stream next year. As it will be the culimating point for the 1,212-km Paradip-Hyderabad product pipeline, the terminal is expected to provide Indian Oil leverage in terms of fuel supplies in Telangana. “By December 2023, we will be able to commission the terminal… bring our own product,” Executive Director and State Head of India Oil for Telangana and Andhra Pradesh B.Anil Kumar said here on Wednesday. The terminal will have a storage capacity of 1,80,000 kilolitres. Once commissioned, the pipeline and terminal are expected to reduce reliance of Indian Oil on Hindustan Petroleum Corporation’s Visakhapatnam-Hyderabad pipeline for fuel supplies in Telangana. Indian Oil will also be shifting operations of its terminal in Cherlapally, near Hyderabad. The Cherlapally facility is, however, unlikely to be shut, he added. To queries, he said petrol and diesel consumption in Telangana surpassed pre-COVID retail sales levels. Petrol consumption during April-November was 13.2% higher compared to the same period last fiscal. Retail diesel usage was 10.2% more in the same period. Average monthly sales is around 1,23,000 tonnes petrol and 2,66,000 tonne a diesel. High VAT While petrol offtake is growing on the back of Hyderabad and surrounding areas expanding, growth in diesel consumption is stunted in Telangana and Andhra Pradesh because of higher value-added tax levy in the two States. “The price disparity is high becaue of local taxes,” Mr. Anil Kumar said, citing how heavy vehicles plying interstate prefer to tank up at retail outlets in neighbouring Maharashtra, Karnataka and Odisha to benefit from the lower prices. Listing out Indian Oil initiatives in Telangana, he said under SATAT (Sustainable Alternative Towards Affordable Transportation) programme that encourages entrepreneurs to set up compressed biogas plants for supplying CBG to oil companies, IOC has issued seven LOI for setting up of such facilities in Telangana. Three of them will come up in Hyderabad and one each in Jangaon, Mahbubnagar, Medchal and Warangal. The CBG purchased from the plants would be marketed through Indian Oil’s retail outlets. Besides Cherlapally, the company has a storage facility in Ramagundam. The two installations together have a capacity of 1.186 million KL of petrol and 4.256 million KL of diesel. The company, which has 1,425 retail outlets, commissioned 337 new ROs in last 3 years. In the current fiscal, it will be adding 168 ROs. On ethanol blending with petrol, he said Indian Oil has achieved 10% blending in both Telangana and Andhra Pradesh. It is, however, not pursuing plans to set up ethanol refineries following government of India directive that private entrepreneuers should be allowed to set up such facilities.