India’s gasoil, gasoline sales surge on festive
Gasoline and gasoil sales by Indian state refiners rose sharply in September from a year earlier, signalling a pick-up in industrial activity ahead of the festive season from this month, preliminary sales data showed. Local fuel demand – a proxy for oil demand in Asia’s third largest economy – regularly slows during the four-month monsoon season from June. State-refiners’ average daily gasoline sales rose 1.3% from August and was up 13.2% from a year earlier, the data showed. Sales of gasoil in local markets increased by 4.6% from the previous month and by 22.6% from a year ago, the data shows. India’s gasoil consumption, which accounts for about two-fifths of the country’s fuel demand, typically increases during the month-long festival season that ends with the celebration of Diwali as diesel-guzzling trucks hit the road and industrial activity gathers pace. State retailers Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp Ltd own about 90% of the country’s retail fuel outlets.
India makes strong pitch to US firms for investing in oil and gas production
Favourable geology, open data access, supporting policy regime and ease of doing business were the major drivers to attract potential US players to invest in India’s energy and petroleum growth wave during a two-day investors meet held here. The investors meet from September 28-29, showcasing the lucrative fiscal policies and conducive environment of energy and petroleum (E&P) sector, that has seen a paradigm shift in policies aimed at attracting investors for investment was organised by Directorate General of Hydrocarbons (DGH) under the aegis of Ministry of Petroleum and Natural Gas (MoPNG) and facilitated by Houston Consulate General of India. MoPNG Secretary Pankaj Jain, in his keynote address to potential investors from over 50 companies; oil and gas majors, financial institutions, private equity firms, service providers and academicians, made a strong pitch to investors interested in doing business with India. He discussed India’s strength and role in the global energy ecosystem and highlighted India as the destination of energy opportunities. Jain spoke on the latest offering of discovered fields, ease of doing business for bidding and assured an open-door policy to resolve any issue faced by the industry as he sought foreign and private investments to boost domestic oil and gas production. “India is the world’s 4th largest oil importer and the demand is expected to rise driven by an increase in India’s per capita consumption of energy which currently stands at one-third of the global average. India wants to be the new destination for global energy players. Oil producers worldwide are eager to gain a foothold in India, where fuel demand is expected to keep rising as the country’s economy grows,” he said.
Oil Prices On Track For First Quarterly Loss Since 2020
Fears of a global recession have caused crude oil prices to fall for most of the quarter that ends today and they are likely to book their first quarterly decline since 2020, according to Bloomberg. “Oil’s poor quarter is clearly a reflection of an oil market that is losing its tightness as global recession risks surge,” Ed Moya, senior market analyst at Oanda, told Bloomberg. “Energy traders clearly expect drastic action by OPEC+.” “Amid so much uncertainty, seesaw trade may be common over the next week, unless we get more clarity from OPEC+ sources on the likely size of any adjustment and what it means for previous missed quotas,” another senior oil analyst from Oanda told Reuters. For the fourth quarter, it seems there’s some upside potential for prices, coming from OPEC. First, reports earlier this week suggested Russia would propose a production cut of 1 million bpd. Then later reports said several large producers in the OPEC+ group had started discussing cuts. While a production cut from OPEC+ would serve to counter economic pessimism, the effect might not be sustained because OPEC+ is already producing much below its own target: the figure for August was lower than targets by more than 3 million bpd. In other words, whatever the official production targets are, actual production tends to be much lower, effectively making targets meaningless. The tightness of global oil supply that OPEC officials have been warning about, however, remains very real and about to get potentially more severe after the EU embargo on maritime Russian oil imports enters into effect in December. Physical demand destruction appears to be the only way to temper prices and a soaring U.S. dollar has done a lot to achieve that, albeit probably inadvertently. Earlier this month, oil prices slumped to the lowest in eight months as the greenback jumped to a two-decade high fuelling stronger recession fears.
How high crude oil prices are ‘breaking India’s back’
Foreign minister S Jaishankar was not wrong when he said on Tuesday high oil prices are breaking India’s back. Despite cheap crude import from Russia, India’s crude oil basket has averaged above $100 a barrel so far this year. As per the Petroleum Planning and Analysis Cell, a body of the Petroleum ministry, India’s crude basket more than doubled in the past 3 years, taking crude prices from an average $45 per barrel in 2020-21 to $104 per barrel in 2022-23 (till September). India’s crude basket price averaged at $102.97 a barrel in April 2022, $109.51 in May, $116.01 in June, $105.49 in July, $97.40 in August and $91.23 per barrel in September so far. “The price of oil is breaking our back. We are a $2,000 per capita economy. The energy market is under stress due to the Ukraine war and that not just the pricing but the very availability of oil has become an issue,” said Jaishankar. India is dependent on imports to meet 85% of its oil demand and 55% of its natural gas requirements. It imports majority of crude from the OPEC+ country. The country spent $122 billion on crude oil imports in 2021-22, nearly double that of $62.71 billion in 2020-21. In the first five months of the current financial year, India has already imported $64 billion of crude oil. Dr DK Srivastava, chief policy advisor, EY India, says an ‘Oil Price Stabilization Fund’ may be established to minimise India’s multidimensional vulnerability to global crude oil shocks. He advises the government to expand and diversify sources of oil and gas imports in order to cut the average price of the Indian crude basket. Ever since war broke out between Russia and Ukraine, western countries are beckoning India to stop purchasing crude oil from Russia. India’s oil imports from Russia have jumped over 50 times since April and now it makes up for 10% of all crude bought from overseas. Till last year, Iraq (25%), Saudi Arabia (18%) and the UAE (10%) were the top 3 crude suppliers for India. This year till July, Russia with 14% share has become the third biggest supplier to India.
Why the outlook on petrol prices is not as bad as it seems, now the fuel excise cut has ended
In early March Russia’s invasion of Ukraine pushed global oil prices up by about 30% and Australians faced paying more than $2.15 a litre for petrol. Contrary to economists’ advice, the Morrison government decided to halve of the fuel excise for six months, reducing the cost of petrol by 22.1 cents a litre. That discount period ended at midnight. So what can you expect local fuel prices to do now? To begin with, the fuel excise is indexed so it will add 23 cents to a litre of petrol. But not immediately. Your local service station’s tanks are likely to still hold fuel for which the retailer paid the discounted excise. Federal Treasurer Jim Chalmers has cited industry estimates of about 700 million litres of discounted fuel still being “in the system”. To put that in perspective, Australians consumed an average of about 42.5 million litres of petrol a day in 2021. So it may be one to two weeks, depending on where you live, before you’re paying extra. . But what you will then be paying probably won’t be that different to before Russia invaded Ukraine, with global oil prices dropping due to efforts to increase supply and a deteriorating global economic outlook suppressing demand. Global prices dictate local prices Australia imports about 90% of its refined fuel needs, so the main determinants of the price of petrol and diesel in Australia are international oil prices and the value of Australian dollar to the US dollar (because oil prices are determined in US currency). Over the past six months the Australian dollar’s buying power has declined from about 75 to 65 US cents (a 13% drop). But that has been offset by oil prices falling more than 30% since June. There is no single oil price because oil is traded in different markets according to its quality (with names reflecting the historical source of that type of oil). The following graph shows two commonly cited benchmarks — West Texas Intermediate (from Texas) and Brent Crude (from the North Sea). Prices spiked after the invasion of Ukraine due to Russia’s signicance as an oil exporter (the second-biggest after Saudi Arabia, accounting for about 8% of exports in 2021) and uncertainty about what the conflict would mean for those exports, as well as Russia’s gas exports to Europe and markets generally. Increased supply, faltering demand The steady decline since June is due to two main reasons. First, the efforts of the European Union and the United States to increase non-Russian oil supplies. This has been both to ease inflationary pressures on their own economies as well as to drive down the windfall revenue Russia has made from its oil exports (mostly to China and India). The G7 is working on a plan to further choke off those revenues through imposing a price cap on Russian oil exports. Whether this will succeed depends first on finding agreement in Europe, which is divided over the plan. The Australian government is supporting the price cap but this is mostly symbolic. At this point I can’t see it having much practical impact on Australian petrol prices. Second, the global economy is weakening, which is taking the pressure off demand. The OECD’s economic outlook published this month predicts global economic growth will slow to 2.2% in 2023. As a consequence, the International Energy Agency’s Oil Market Report last month revised upwards its outlook for world oil supply (though it also warned “another price rally cannot be excluded” given disruption risks). Crude oil prices are now below US$90 a barrel — less than at the start of Russia’s invasion of Ukraine. For the next 12 months oil prices can be expected to decline to below US$80. This will put Australian petrol and diesel prices back to where they were in 2021. Which is good news for motorists, if not the global economy.
Govt likely to revise windfall tax on domestic oil refiners soon
The central government is likely to revise windfall gain tax on domestic oil refiners soon, CNBC-TV18 reported on September 29 citing sources. The development comes days after government reduced windfall tax on locally produced crude oil to Rs 10,500 from Rs 13,000/tonne after its fifth fortnightly review, according to a circular issued by Ministry of Finance on September 16. Additionally, it has also reduced tax export of diesel and ATF. The sources added that there can be further cut in cess on crude oil, export duties on diesel and ATF. The Petroleum Ministry has submitted the data of price movement of global crude oil prices over the past fortnight to revenue department pitching for a cut, the sources said. India had first imposed windfall taxes on July 1, joining a growing number of nations that taxes super normal profits of energy companies. But international oil prices have cooled since then, eroding profit margins at both oil producers and refiners. On July 1, export duties of Rs 6 per litre ($12 per barrel) were levied on petrol and ATF and a Rs 13 a litre tax on export of diesel ($26 a barrel). The Rs 23,250 per tonne windfall tax on domestic crude production ($40 per barrel) was also levied. The duties were partially adjusted in the previous four rounds on July 20, August 2, August 19, September 1 and September 16, and were removed for petrol.
India reaches out to US, Iraq for LNG after Gazprom reduces supply
The decision comes as LNG supplies from Russia’s Gazprom have been declining since the start of the Russia-Ukraine war. India has reportedly reached out to Iraq, Saudi Arabia, UAE, and the US to secure liquified natural gas (LNG) at affordable prices. The decision comes as LNG supplies from Russia’s Gazprom have been declining, according to a report in Mint. In 2018, Gazprom Marketing and Trading Singapore (GMTS), a subsidiary of Gazprom, signed a pact with the Gas Authority of India Ltd (GAIL) to supply 2.5 million tonnes of LNG for 20 years. But since the start of the war in Ukraine, the supplies from GMTS have been dwindling. India’s consumption of LNG has been rising on the back of Centre’s decision to diversify its energy sourcing. Currently, gas comprises 6.2 per cent of India’s energy needs. The government is planning to take it up to 15 per cent by 2030, Mint added. India is also largely dependent on imports for meeting its oil and gas needs. Eighty-five per cent of the local oil demand and 55 per cent of the local gas demand is met by imports in India. A government spokesperson was quoted by Mint as saying that the centre is trying to acquire gas from wherever possible at “best-suited prices”. “As of now, availability of gas is not an issue, only the price is. Today, gas is available everywhere, including in the UAE and US. We are trying to negotiate to get a good deal wherein we can get gas at an affordable price. We are looking at Saudi Arabia, the US, UAE and Iraq,” another official said. The report further added that India may not pursue arbitration against Gazprom but may deal with the issue bilaterally “at the highest level of the Indian government”.
IOC inks long-term crude oil deals with Petrobras, Ecopetrol
State-owned Indian Oil Corp. Ltd. has inked long-term oil supply contracts with Brazil’s Petroleo Brasileiro SA (Petrobras) and Colombia’s state-run Ecopetrol SA, boosting the country’s energy security. The contract with Petrobras for 1.7 million metric tonne per annum (mmtpa) was inked during India’s petroleum and natural gas secretary Pankaj Jain visit to Brazil last week where he also met Petrobras CEO Caio Paes de Andrade. The long term contract with Ecopetrol was inked in Singapore. Mint had reported about India’s, the world’s third-largest oil importer, plans to sign these long-term contracts as part of efforts to diversify its energy basket by importing crude oil from non-Opec (Organisation Petroleum Exporting Countries) sources. In a tweet, India’s petroleum and natural gas ministry said Jain had productive discussions with CEO Petrobras, Caio Paes de Andrade, on mutually beneficial arrangements for crude oil export to India from Brazil and export of petroleum products to Brazil. “He also discussed collaboration in the refining, bio-fuels & EP sectors,” the tweet said and added, “Witnessed signing term contract of 1.7 MMTPA between @IndianOilcl & #Petrobras.“ This is the first ever term contract between an Indian company and Petrobras and comes in the backdrop of state-run Bharat Petroleum Corporation Ltd (BPCL) subsidiary Bharat PetroResources Limited’s (BPRL) plans to invest $1.6 billion to develop BM-SEAL-11 project in Brazil. India’s Cabinet Committee on Economic Affairs (CCEA) in July had approved this additional investment in the project which is expected to see production from 2026-27, wherein BPRL has 40% participating interest and Petrobras with 60% participating interest is the operator. “#IndianOil is committed to strengthening India’s energy security! Keeping with that goal, we signed a Term Contract with the Colombian national oil company Ecopetrol in Singapore today as a part of our continued efforts to diversify our crude oil sourcing,” Indian Oil corp. said in a tweet. Indian Oil Corp. is commissioning its 15 mtpa Paradip refinery, which has a complexity factor of 10.7 based on the Nelson Index and can process high-sulphur crude. India is a key Asian refining hub, with an installed capacity of more than 249.36 million tonnes per annum (mtpa) through 23 refineries. It plans to grow its refining capacity to 400 mtpa by 2025. Large Indian refiners include IOC, BPCL, Hindustan Petroleum Corporation Ltd (HPCL), Nayara Energy Ltd (formerly Essar Oil) and Reliance Industries Ltd. “MoU between @BPCLimited & Petrobras for long term cooperation was also signed,” India’s petroleum and natural gas ministry said in a tweet. BPCL has a refining capacity of 5.3 mmtpa. These long term crude oil supply contracts are a result of government-to-government negotiations on preferential pricing for India and supply stability. India has been trying to diversify its crude oil energy import basket, with its major sources of crude oil imports being Iraq, Saudi Arabia, UAE, Nigeria and USA.
Oil Price Cap On Russian Crude Could Cause Tanker Shortage
With the EU embargo on imports of Russian oil starting in December, Russia will have to find new homes for around 2.4 million barrels per day (bpd) of its crude and refined product exports, which will be banned from entering EU and G7 countries unless the oil is sold at or below a certain price the buyers expect to set. Even if the price cap mechanism fails to work for the West, as many analysts expect, and even if Russia manages to divert all its previously EU-bound oil exports eastwards to Asia, this would create a shortage in the oil tanker market, sending shipping rates surging further. This would mean elevated oil prices, even for discounted Russian oil because of the high freight rates. Moreover, the available oil tankers not owned or tied to owners from the EU or G7 are simply not enough to handle the massive Russian oil exports, analysts say. The changing trade routes with much longer voyages from Russia’s Baltic and Black Sea ports to Asia – instead of just a week to travel to Europe – would also tie up more tankers on months-long round trips. More vessels would be needed for ship-to-ship transfers from smaller Aframax tankers to very large crude carriers (VLCC) to ship the oil from ports very close to Europe all the way to Asia. Shipping Constraints While very bullish for the tanker owners and freight rates, the biggest oil trade shift in recent memory would create additional headaches for buyers amid lower tanker availability and higher prices due to a surge in shipping rates. The re-routing of Russian crude from West to East would put a strain on the shipping sector, Giovanni Serio, Global Head of Research at the world’s largest independent oil trader, Vitol, said this week. The average Asia-bound route of at least 21 days is triple the Europe-bound voyage, which will result in almost a 3% rise in shipping activity measured in ton-miles, Serio said at the APPEC oil conference in Singapore, as carried by Reuters. Traders will face challenges in finding Aframaxes to load oil from Russian ports, Vitol’s executive added. “There is already a lot of incentive to switch the ship size from Aframax into Vs (Very Large Crude Carriers) that are going to be more available,” Serio said, but noted that VLCCs will need to be loaded via ship-to-ship transfers to load crude or products from smaller vessels. Price Cap ‘Minefield’ In another hurdle for oil shipping after the EU embargo and the price cap enter into force in December, traders and insurers aren’t really sure how the price cap mechanism would work and how much oil flows could be affected. “We need buy-in from governments, and governments to guide us because it’s a bit of a minefield,” Vitol’s chief executive Russell Hardy told the APPEC conference, as carried by Bloomberg. Vitol will carefully assess the price cap developments “before we decide exactly what we think is right for Vitol,” Hardy added. Vitol’s Serio noted that capping the price of Russian oil but allowing it to flow would be a “potential relief valve” for the global oil market. Of course, if Putin makes good on his promise to halt all energy supply—including crude, fuels, natural gas, and coal—to the countries that sign up to cap the price of Russian oil, “Russian oil will have to sail on non-Western tankers – and there aren’t enough vessels to handle Russia’s millions of barrels,” according to Energy Intelligence. Finding tankers and insurance coverage not linked to the EU, the G7, or other countries that may join the price cap mechanism for the amount of oil Russia exports could be next to impossible. Reports have already emerged that India, which has been buying large volumes of Russian crude since the Russian invasion of Ukraine to take advantage of cheap oil, is set to slow purchases of the Russian oil this month and look to more African and Middle Eastern supply as shipping rates on longer voyages have jumped. After the EU embargo enters into force, India and China in theory could absorb additional Russian oil, but the banking sector would be wary of secondary sanctions from the U.S., and this could cap Russia’s ability to export oil, Amrita Sen, founder and director of research at Energy Aspects, told Bloomberg television in an interview last week. In addition, Russia tying up a lot of oil on ships to Asia and then finding buyers would further raise freight rates, she added. Oil Transportation Bottlenecks? Europe-based major tanker owner and oil transportation services provider Frontline said in a presentation at the Pareto Conference this month that volumes of oil in transit continue to grow to unseasonably high volumes. The tanker market is now a “ton-mile story” as the Russian invasion of Ukraine is displacing crude and products trade flows, with “highly inefficient trading patterns developing.” Global crude oil exports are approaching pre-Covid levels, while product flows and oil in transit are already there, Frontline said, adding that order books continue to dwindle, and there are no incentives to invest in new tanker capacity, yet. This could be the start of structural bottlenecks in oil transportation to come, the tanker fleet owner said.
APPEC Russian Urals crude discounts shrink sharply, says India refinery exec
Discounts on the sale of Russian Urals crude have shrunk significantly from the $36/barrel seen soon after the Russia-Ukraine conflict, said an official from Indian refiner Bharat Petroleum Corp, indicating that Moscow is regaining pricing leverage in a tight energy market. The discounts on Urals sold on a free-on-board basis have reduced to the “teens”, Amit Bilolikar, deputy general manager for crude trading, said on the sidelines of the 38th Annual Asia Pacific Petroleum Conference (APPEC). India, which rarely used to buy Russian oil, has emerged as Moscow’s second-largest oil customer after China since Moscow’s invasion of Ukraine in late February. Refiners in India, the world’s third-biggest oil importer and consumer, have been snapping up nearly all grades of Russian crude, taking advantage of discounts after some buyers in the West halted purchases. However, Indian refiners this month are set to skip loading of Russia’s ESPO oil as higher freight rates have made the crude costlier, sources told Reuters earlier this month. India has said that Russian oil purchases are driven by economic considerations as the authorities try to rein in inflation. Bilolikar also said BPCL’s purchases of U.S. oil has been rising steadily, replacing West African and Mediterranean crude. The discount between U.S. crude futures to Brent , rising to more than $7 a barrel, has made it economically feasible for India to import American oil. “U.S. crude oil prices are very dynamic and U.S. (oil) industry is very resilient. Quality wise they are a good replacement for our refineries,” he said. The government-controlled refiner was taking mostly lighter grades such as Midland, he added. To cut Russia’s oil revenue, the Group of Seven nations, led by the United States, plan to impose a price cap on Russian exports. Bilolikar said there was no clarity yet on the planned price cap mechanism. “But one thing is very clear. We do all the due diligence and we follow all the international laws. If there are no sanctions on trade of Russian oil, we’ll definitely continue purchasing,” he said, as securing cheaper supplies are a priority for India.