Uncertainties plague oil market

According to the Seatrade Maritime News, energy analysts point to a range of uncertainties that could influence oil demand, supply and price in the months ahead.

Unexpectedly weak oil demand in China so far this year is one of the factors that OPEC Plus members will be considering when they meet at the next Joint Ministerial Monitoring Committee at the beginning of October.

But there are a number of other factors which could affect their decision on whether or not to ease the 2.2 million barrels a day (bpd) of production cuts that are currently in place.

These cuts were originally agreed in 2020 when COVID struck and oil demand fell sharply. These were steadily eased as the pandemic passed but restrictions on output were introduced again in April 2023, which will be the subject of discussion at the October meeting.

Softer Chinese demand is mirrored elsewhere as geopolitical tensions and slower growth affect many regions. Global oil demand growth has slowed down over recent quarters even as some OPEC Plus members, notably Russia, exceed OPEC Plus output quotas.

Shipbroker Gibson notes that OPEC Plus recently cut oil demand growth expectations to 2.11 million bpd this year, but so far this increase has not materialized.

Further downward revisions to projections may be required and the issue casts doubt on the cartel’s forecast of a 1.78 million bpd demand increase in 2025.

The broker notes that the International Energy Agency has a more moderate demand growth forecast of 0.95 million bpd for next year.

Meanwhile, Poten notes that more non-OPEC production has come on stream since the pandemic, with the United States, Canada, Guyana, and Brazil increasing output and eating into OPEC’s share.

More non-OPEC crude will hit the market in 2025, as the International Energy Agency forecasts that supply is likely to rise by 1.75 million bpd, significantly more than likely demand growth of 1.0 million bpd.

Owners of smaller tankers will be closely watching developments in these non-OPEC countries where output is rising.

For VLCC owners, what happens in China is the most important factor because of the long-haul nature of the trade.

But the strategy that OPEC Plus members adopt at the October meeting is a key factor too.

If the cartel members decide to ease the present production restrictions, the process will take place gradually over time.

Poten observed, “If they start to roll back their production cuts, it will be very slow and in small increments, so as not to flood the market and undermine oil prices.”

Why can’t Pakistan buy oil and gas from Iran?

The United States first imposed sanctions on Iran in 1979 on the pretext of radical students storming its embassy and taking staff hostage. Since then sanctions have remained in force, in fact new sanctions have been imposed over the years.

While the United States continues to play the mantra that Iran is busy in the production of nuclear warheads, it hasn’t come up with any credible proof. Many doubt it is a hoax call like presence of Osama bin Laden in Afghanistan and Iraq busy in the production of weapons of mass destruction (WMD).

The growing perception is that the United States considers Iran a hurdle in the creation of its hegemony in the region, the major source of crude oil.

There is also growing impression among Pakistanis that the successive governments in Pakistan due to the US pressure stopped buying crude oil from Iran and didn’t go ahead on the construction of Iran-Pakistan gas pipeline.

The US administration is fully cognizant of the fact that Pakistan’s GDP growth is being pegged due to looming energy crisis. However, Pakistan is not allowed to buy crude oil and gas from Iran.

It is on record that India has been buying crude oil from Iran and also from Russia, despite imposition of sanction.

It is high time Pakistan should ask the United States to allow it to import crude oil and gas from Iran.

To be honest, the United States has no legal or moral authority to restrict any country from buying Iranian energy products.

Lately, the United States has not only swapped prisoners with Iran, but also allowed transferred US$6 billion to Iran. This was in fact Korean money payable to Iran, against crude oil already purchased.

Is it not the height of hypocrisy that United States has used money which it never owned for the exchange of prisoners, but didn’t release the funds when Iran needed it the most during COVID-19 pandemic?

The time has come Pakistanis should assert themselves and convince the US that buying energy products from Iran bodes well for Pakistan. If India can pay Russia in different currencies, Pakistan should also be allowed to buy energy products from Iran against supply of food.

On may recall that during sanctions on Iraq, the country was allowed to export certain quantity of crude oil and use the proceeds for buying food under “Oil for Food Program”.

Crude oil on track for biggest monthly gains

According to Reuters, crude oil prices hovered near three-month highs on Monday, set to post their biggest monthly gains in over a year on expectations that Saudi Arabia would extend voluntary output cuts into September and tighten global supply.

Brent crude futures dipped 9 cents to US$84.90 a barrel by 0005 GMT while US West Texas Intermediate (WTI) crude was at US$80.41 a barrel, down 17 cents.

The September Brent contract will expire later on Monday. The more active October contract was at US$84.23 a barrel, down 18 cents.

Brent and WTI settled on Friday at their highest levels since April, gaining for a fifth straight week, as tightening oil supplies globally and expectations of an end to US interest rate hikes supported prices. Both the benchmarks are on track to close July with their biggest monthly gains since January 2022.

Saudi Arabia is expected to extend a voluntary oil output cut of one million barrels per day (bpd) for another month to include September, analysts said.

"Oil prices are up 18% since mid-June as record high demand and Saudi supply cuts have brought back deficits, and as the market has abandoned its growth pessimism," Goldman Sachs analysts said in a July 30 note.

"We still expect the extra 1 million bpd Saudi cut to last through September, and to be halved from October."

The bank maintained its Brent forecast at US$86 a barrel for December and expects prices to rise to US$93 in the second quarter of 2024.

Goldman Sachs estimated that global oil demand rose to a record 102.8 million bpd in July and it revised up 2023 demand by about 550,000 bpd on stronger economic growth estimates in India and the United States, offsetting a downgrade for China's consumption.

"Firmer demand is driving a moderately larger deficit in H2 2023 than expected, averaging 1.8 million bpd, and a modest 0.6 million bpd deficit in 2024," it said.

Exxon Mobil CEO Darren Woods said the company expects record oil demand this year and next year, and that this may help boost energy prices in the second half of the year.

In the US, energy firms in July cut the number of oil rigs for an eighth straight month by one to 529, Baker Hughes said in its weekly report on Friday.

 

 

 

Chinese refineries buying more oil from Iran

Chinese private refineries are buying more Iranian oil as competition for supplies from Russia rises, Bloomberg reported. The teapots are prioritizing the flows, with Russian supplies getting pricier as mainstream buyers such as state-owned Chinese refiners and Indian processors take a greater share, according to analysts and trade data.

In March 2023, China’s imports of Iranian crude and condensate jumped 20%MoM to 800,000 barrels a day, and are on track to extend gains in coming months, according to Emma Li, an analyst with data intelligence firm Vortexa Ltd.

While Iranian oil has long been sanctioned by the US, refiners in China have proved to be a consistent outlet. 

Most Iranian oil used to go to state-owned refineries but the private refiners in Shandong especially are now running the show, said Homayoun Falakshahi, senior crude oil analyst at Kpler, the data and analytics firm.

Iranian President Ebrahim Raisi has said that the oil and gas sector experienced a growth of nine percent in the past Iranian calendar year 1401 (ended on March 20).

Oil Minister Javad Oji has recently said that a new record high will be reached in the country’s oil export in the current Iranian calendar year.

The country’s oil export in 1401 was 83 million barrels more than that of 1400, and 190 million barrels more than the export in 1399, the minister announced.

Underlining that now oil export has reached the highest figure in the last two years, the official said, “Considering that the Oil Ministry is one of the main providers of the country's foreign currency; in the 13th government, despite the tightening of cruel sanctions, fortunately, thanks to the grace of God and the efforts of our colleagues in the country's oil and gas industries, there are good records in the field of exporting crude oil, gas condensate, and petroleum and petrochemical products.”

Despite the negative impacts of the U.S. sanctions, Iran has been ramping up its oil production and exports over the past few months.

In his remarks in November 2022, President Raisi highlighted the failure of the enemy’s policy of maximum pressure, saying the country’s oil export has reached the pre-sanction levels.

Back in January, the U.S. Energy Information Administration (EIA) in a report put Iran’s average oil production in 2022 at 2.54 million bpd, 140,000 bpd more than the previous year.

Iran's oil production in 2021 was about 2.4 million bpd.

 

Baghdad-KRG deal to resume oil exports

Iraq's federal government and the Kurdistan Regional Government (KRG) are close to striking a deal aimed at resuming northern oil exports, four sources familiar with the discussions told Reuters on Saturday.

Turkey stopped pipeline flows from the Kirkuk fields in northern Iraq's semi-autonomous Kurdistan region to its port of Ceyhan on March 25, after it lost an arbitration case brought by Baghdad.

In the case, Iraq accused Turkey of violating their 1973 pipeline agreement by allowing the Kurdish government to export oil without Baghdad's consent between 2014 and 2018.

The halted flows of around 450,000 barrels per day (bpd) only accounted for about 0.5% of global oil supply, but the stoppage, which forced oil firms operating in the region to halt output or move production into rapidly-filling storage tanks, still helped boost oil prices last week back to near US$80/bbl.

An initial agreement between the two sides states that Iraq's northern oil exports will be jointly exported by Iraq's state-owned marketing company SOMO and the KRG's ministry of natural resources (MNR), according to two of the sources – a senior Iraqi oil official and a KRG official.

Revenues will be deposited in an account managed by the MNR and supervised by Baghdad, the KRG official said.

The preliminary agreement has been sent to Iraq's prime minister for final approval, according to two of the sources. The KRG source expects the deal to be confirmed by Monday.

The KRG declined to comment. Iraq's oil ministry spokesman could not immediately be reached outside regular business hours.

Baghdad and the KRG have agreed to continue meetings following the resumption of oil exports to find solutions to other lingering problems.

"[These include] the contracts of the foreign companies operating in Kurdistan and the Kurdish debts," the senior Iraqi oil official said.

With its oil exports at a standstill, Kurdistan had halted repayments to energy traders including Vitol and Petraco on crude cargo deals worth US$6 billion, trading sources said.

Another sticking point in discussions so far has come from the Turkish side.

A second arbitration case relating to the 1973 pipeline agreement for the period from 2018 onwards remains open, and one source said this could take around two years to settle.

Turkey wants that case resolved before reopening the pipeline, three sources told Reuters.

A Turkish senior official said Turkey has yet to be informed about the initial agreement by the KRG or federal Iraqi officials and that discussions are ongoing.

Peeping into the commodities market

After starting the year on weakness, crude oil prices have rebounded, driven by fears regarding China’s subdued demand easing off.

Brent futures rebounded by 7% on China announcing enhanced import quotas for 2023. This signaled that the country would continue to ramp up its demand, whether for inventory replenishment or heightened demand for petroleum products.

The second round of quotas enhancing allowed imports to 108.78 million tons of crude oil for 2023, corresponding to 60.6% of the ceiling, as compared to the earlier quota of 58.4%.

The developments out of China were enough to overshadow the inventory data from the US, where crude oil stocks in the country increased by a mammoth 19 million barrels during the week ended January 06, 2023.

Additionally, the latest CPI reading from the US led to expectations of the pace of rate hikes in the US to slow down. As a knee-jerk reaction, the US$ showed weakness, with the US Dollar Spot Index dropping by 0.9% on Thursday, making the dollar-denominated crude oil futures more attractive for investors trading in other currencies.

Moreover, a slowdown in the rate hike has led to expectations of demand not dropping by as much as earlier anticipated.

Global refining margins have continued to tick upwards amidst drop in refinery utilization due to snow storms in Texas, offsetting demand lows from holiday season resulting in larger than anticipated fuel inventory declines. Overall, snow storm in Texas has halted nearly 2.4 million bpd of refining capacity.

On the European front, shortage of natural gas exacerbated by the conflict in Ukraine, and western sanctions on Russian fuel supplies has resulted in overall power/heating demand turning towards diesel/fuel oil, exacerbating heating oil prices further. On the flipside, stronger-than expected economic data from China may result in refined-product exports from the Asian powerhouse to begin rolling out soon, weighing on margins/cracking spreads in the near term.

Overall, EIA’s January outlook expects combined gasoline, diesel and jet inventories to rise 9% in 2023, led by a 2.8% jump in refining throughput, with weaker economic activity pressuring diesel and gasoline consumption going forward. To note, gasoline/gasoil spreads currently stand at US$12.4/30.5 per barrel.

Richard’s Bay coal prices have continued to decline, currently hovering at US$167/ton compared to December 022/2QFY23 average of US$231/239/ton.

 Lower than anticipated heating demand due to milder winters in Europe and buildup of coal stockpiles in anticipation of winters has resulted in laggard demand for coal, leading to a decline in prices, particularly since mid-December 2022.

Coal prices had risen significantly during the past year amidst the global commodity super-cycle, peaking at US$460/ton in March 2022. Going forward, analysts expect coal prices to trend downwards to hover around US$160/ton in the near term. In the long run, coal prices are expected to settle around US$120/ton, although still higher as compared to pre-COVID averages of US$80/ton.

This may be attributed to delays in green energy conversion plans by developed countries, with several EU countries extending the life of coal plants which previously were scheduled for closure and reopening previously shut plants last year to address the shortage of Russian gas.

 

Even with the winter season beginning to settle (seasonal construction slowdown), scrap has rallied 22% from lows of US$340/ton in November 2022, to currently hovering around US$418/ton as compared to FYTD/ CYTD average of US$377- US$402/ton.

The said rise is majorly attributable to Chinese lockdown pullbacks, evident by 4.3% increase in purchase managers index (PMI) in December 2022 as compared to November 2022 (although still in a contractionary phase below 50).

The decision to move away from restrictions include a reduction in the overall mandatory quarantine period, which has been causing a myriad of problems for the world’s second largest economy. The said rally was not only driven by easing of restrictions but also by the abandoning of zero-COVID policy entirely, as protests against lockdowns have been running rampant in the country’s capital.

Although, the said bull-run may be short lived as routine virus controls, the ongoing property crisis, and the winter pollution curbs are expected to keep the construction/ engineering on the back foot in the near term. On the flipside, demand may pick up from a stimulus package (aimed at the housing sector) to be announced soon by the Chinese government targeting domestic industries and consumer spending.

Overall, Asian scrap demand is unlikely to be on a firm footing in the near term, as rising energy costs and a depressed outlook in Asia/ Europe are expected to dictate the production and procurement decisions of steel companies going forward.

United States Joins hands with Britain to control energy trade

The United States and Britain announced on Wednesday an energy partnership aimed at sustaining a higher level of liquefied natural gas (LNG) exports to Britain and collaborating on ways to increase energy efficiency.

Britain and other European countries have turned to the United States as they try to reduce their reliance on Russian energy supplies following Moscow's invasion of Ukraine begun in February.

This partnership will bring down prices for British consumers and help end Europe's dependence on Russian energy," British Prime Minister Rishi Sunak said in a statement.

The "UK-US Energy Security and Affordability Partnership" will also aim to drive investment in clean energy and exchange ideas on energy efficiency and reducing demand for gas.

Household energy bills have hit record highs this year following Russia’s invasion of Ukraine forcing the UK government to cap costs and subsidize the difference a measure analysts forecast could cost up to 42 billion pounds or US$51 billion over the 18 months the cap is in place.

Western countries are also attempting to cap how much Russia can profit from the rise in energy costs that has followed its invasion of Ukraine.

The G7 - which includes Britain and the United States - has agreed a $60 per barrel price cap on Russian seaborne crude oil.

The United States became the world's largest LNG exporter in the first half of 2022, US Energy Information Administration data showed as the country rapidly increased its export capacity and high prices, particularly in Europe led to higher exports.

Britain said the United States would aim to export 9-10 billion cubic metres of LNG over the next year under the agreement, maintaining the increase in exports seen this year.

Refinitiv Eikon data showed Britain has imported around 11 billion cubic metres (bcm) of gas from the United States so far in the first 11 months of 2022, up from 4 bcm in 2021.

Sunak met US President Joe Biden at the G20 in Indonesia last month, where Sunak highlighted the importance of the United States as an economic partner even without a free trade deal. Talks on a free trade agreement are suspended.

On Wednesday, Junior Trade Minister Greg Hands will begin a visit to the United States, where he is announcing a memorandum of understanding on trade with South Carolina, the third such agreement with a US state aimed at boosting trade missions and sharing expertise.

 

 

 

 

 

 

 

 

 

Ghana to buy oil with gold instead of US dollar

Ghana's government is working on a new policy to buy oil products with gold rather than US dollars, Vice-President Mahamudu Bawumia said on Facebook on Thursday.

The move is meant to tackle dwindling foreign currency reserves coupled with demand for dollars by oil importers, which is weakening the local cedi and increasing living costs.

Ghana's Gross International Reserves stood at around US$6.6 billion at the end of September 2022, equating to less than three months of imports cover. That is down from around US$9.7 billion at the end of last year, according to the government.

“If implemented as planned for the first quarter of 2023, the new policy will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency," Bawumia said.

Using gold would prevent the exchange rate from directly impacting fuel or utility prices as domestic sellers would no longer need foreign exchange to import oil products, he explained.

"The barter of gold for oil represents a major structural change," he added.

The proposed policy is uncommon. While countries sometimes trade oil for other goods or commodities, such deals typically involve an oil-producing nation receiving non-oil goods rather than the opposite.

Ghana produces crude oil but it has relied on imports for refined oil products since its only refinery shut down after an explosion in 2017.

Bawumia's announcement was posted as Finance Minister Ken Ofori-Atta announced measures to cut spending and boost revenues in a bid to tackle a spiraling debt crisis.

In a 2023 budget presentation to parliament on Thursday, Ofori-Atta warned the West African nation was at high risk of debt distress and that the cedi's depreciation was seriously affecting Ghana's ability to manage its public debt.

The government is negotiating a relief package with the International Monetary Fund as the cocoa, gold and oil-producing nation faces its worst economic crisis in a generation.

 

Biden National Security Strategy

The White House has released its national security strategy, outlining President Biden’s priorities at the start of what officials are calling a decisive decade for global challenges like climate change and competition among major powers.

The strategy focuses broadly on investing domestically so the US has a modern military and is not dependent on foreign supply chains. It also puts an emphasis on building alliances abroad to counter the influence of adversaries like China.

“The world is at an inflection point, and the choices we make today will set the terms on how we are set up to deal with the significant challenges and the significant opportunities faced in the years ahead,” National Security Adviser Jake Sullivan told reporters.

Sullivan said the administration highlighted two major challenges that the national security strategy needed to address. The first is competition between major powers, pointing to both economic competition and Biden’s long-running warnings about democracies versus autocracies.

The second key challenge is dealing with transnational challenges like climate change, food insecurity and infectious diseases, Sullivan added.

Underlying it all is the growing competition between the US and China, as well as the ongoing war in Ukraine sparked by Russia’s invasion in February.

“We will effectively compete with the People’s Republic of China, which is the only competitor with both the intent and, increasingly, the capability to reshape the international order, while constraining a dangerous Russia,” the national security strategy states.

The administration said that the US is willing to work with any country, including our competitors, willing to constructively address shared challenges, but officials will simultaneously pursue deeper ties with other democracies to prove that they can deliver results.

The strategy calls for investments in emerging technologies and modernizing the US military. It also calls for a focus on trade and shared technology among allies in the Indo-Pacific and Europe.

Lastly, the strategy calls for affirmative engagement across the world. It highlights the US interest in the Indo-Pacific to counter Chinese influence; notes the importance of engagement in Africa to address global problems; and it calls greater integration in the Middle East critical to advancing peace efforts.

The release of the national security strategy was delayed from earlier this year in light of Russia’s invasion of Ukraine, with officials unsure how that development might shift the administration’s priorities and planning.

The strategy is largely used for budgeting purposes and for national security agencies to get their priorities in line with the current administration. The White House last year released interim guidance that pivoted away from the Trump administration’s “America First” strategy and focused instead on global cooperation to take on China and fight the COVID-19 pandemic.

The Russian invasion of Ukraine has taken center stage in much of the administration’s national security efforts, particularly in recent weeks as Russian President Vladimir Putin escalates his rhetoric and actions with missile strikes in Ukrainian cities and thinly veiled references to nuclear weapons — and some overt ones.

The administration is also in the middle of a potential upheaval in its relationship with Saudi Arabia after OPEC Plus — a coalition of oil producing nations that the kingdom is part of — announced it would slash supply by 2 million barrels per day.

Biden said in an interview on Tuesday with CNN that Saudi Arabia would face consequences for the decision, but he declined to offer a timeline for a decision or what the repercussions might be.

 

Canada invokes pipeline treaty with United States

Canada has invoked a 1977 pipeline treaty with the United States for the second time in less than a year. This is to prevent a shutdown of Enbridge-Line 5 pipeline in Wisconsin, said Canadian Foreign Minister Melanie Joly on Monday.

The Bad River Band, a Native American tribe in northern Wisconsin, wants the 1953 pipeline shut down and removed from its reservation because of the risk of a leak and expired easements, which are land use agreements between Enbridge and the tribe.

In May, Enbridge filed a motion in a US district court saying federal law prohibits attempts to stop the pipeline's operations. The motion sought to dismiss some of Bad River Band's claims.

The company said in a statement on Monday that it remains open to resolving this matter amicably and was pursuing permits to re-route Line 5 around the Bad River Reservation.

Joly said Canada has raised serious concerns that a possible shut down of the Line 5 pipeline will cause a widespread and significant economic and energy disruption.

"This would impact energy prices, such as propane for heating homes and the price of gas at the pump. At a time when global inflation is making it hard on families to make ends meet, these are unacceptable outcomes," Joly said in a statement.

The pipeline is a critical part of Enbridge's Mainline network, which delivers the bulk of Canadian oil exports to the United States. Line 5 carries 540,000 barrels per day from Superior, Wisconsin, to Sarnia, Ontario.

Joly said Canada was worried about the domino effects the shutdown would have on jobs.

"The shutdown could have a major impact on a number of communities on both sides of the border that depend on the wellbeing of businesses along the supply chain," she said.

The 1977 pipeline treaty governs the free flow of oil between Canada and the United States, and last year Canada invoked it for the first time ever to start negotiations with the United States to resolve a dispute with Michigan State, which wants to shut down Line 5 on environmental grounds.

This month, a US judge sided with Enbridge in ruling that a federal court should hear a suit by the State of Michigan seeking to force shutdown of the pipeline underneath the Straits of Mackinac in the Great Lakes. 

 

Chinese purchase of Iranian oil rises to record level

According to a Reuters report, Chinese purchases of Iranian oil have risen to record levels in recent months, exceeding a 2017 peak when the trade was not subject to US sanctions, tanker tracking data shows.

Chinese imports exceeded 700,000 barrels per day (bpd) for January 2022, according to estimates of three tanker trackers, surpassing the 623,000 bpd peak recorded by Chinese customs in 2017 before former US President Donald Trump reimposed sanctions in 2018 on Iranian oil exports.

One tracker estimated imports amounted to 780,000 bpd in November-December 2022 at an average.

The ramping up of the purchases by the world's top oil importer comes amid talks between Tehran and world powers to revive a 2015 nuclear deal that will lift US sanctions on Iranian oil exports. The talks have intensified in recent weeks.

A return of Iranian oil will ease tight global supplies and cool crude prices that have touched US$100/barrel following Russia's invasion of Ukraine.

Iran is expected to have a strong comeback to the global oil market in case the nuclear deal is revived and the US sanctions on the country are lifted, Bloomberg reported.

According to the report, considering the capacity of Iran’s offshore oil storages, the Islamic Republic will be able to inject millions of barrels of oil into the market as soon as the sanctions are lifted, without the need for boosting the current level of production.

Asian countries including South Korea are likely to be among the first in line to ship in Iranian cargoes.

Bloomberg puts the estimation of the crude oil stored at Iranian stationary tankers at 65 to 80 million barrels, citing the data intelligence firm Kpler.

About four-fifths of the stored crude is condensate, super-light oil that’s a by-product of natural gas extraction. The overall Iranian volume is higher if crude that’s already in transit is included, the report said

 

50 million barrels crude oil to be released from Strategic Petroleum Reserve

The Department of Energy will release 50 million barrels of oil from the nation's Strategic Petroleum Reserve, the White House announced Tuesday, as the Biden administration seeks ways to control rising costs at the pump.

Of the 50 million barrels, 32 million will eventually be returned to the strategic reserve over the years ahead once fuel prices come down in a bid to ensure the reserve remains stocked, officials said. 

Another 18 million barrels will be released as an acceleration of an oil sale Congress had already authorized.

Tuesday's announcement was made in concert with China, India, Japan, South Korea and the United Kingdom, which will also tap into their own strategic reserves.

The Biden administration had reportedly discussed the strategic reserve option in recent weeks to increase supply as consumers faced higher gas prices amid broader concerns about inflation as the economy rebounds from the coronavirus pandemic.

The Labor Department earlier this month released statistics showing consumer prices grew far faster than expected in October and that annual inflation had hit a 30-year high.

The consumer price index, which tracks inflation for a range of staple goods and services, rose 0.9 percent last month and 6.2 percent in the 12-month period ending in October. The rise in prices was driven largely by a 4.8 percent increase in energy costs for the month, including a 1.6 percent increase in gasoline prices.

In a bid to rein in gas prices as inflation contributed to sinking poll numbers, Biden last week asked the head of the Federal Trade Commission to investigate whether oil companies are illegally increasing prices.

Sen. John Barrasso (R-Wyo.), the ranking member of the Senate Energy and Natural Resources Committee, said on Tuesday that Biden's own policies were to blame for needing to tap into the strategic reserve.

“We are experiencing higher prices because the administration and Democrats in Congress are waging a war on American energy," Barrasso said in a statement, arguing Tuesday's announcement would not fix the problem alone.

"Begging OPEC and Russia to increase production and now using the Strategic Petroleum Reserve are desperate attempts to address a Biden-caused disaster," Barrasso added. "They’re not substitutes for American energy production."

Congress is negotiating a roughly $2 trillion reconciliation package that is the cornerstone of Biden's agenda and features billions of dollars in investments in programs to combat climate change, with investments in renewable energy, electric cars and more.

The White House insisted Tuesday's announcement was not at odds with Biden's goals to shift away from fossil fuels in the years to come.

"Today’s announcement reflects the President’s commitment to do everything in his power to bring down costs for the American people and continue our strong economic recovery," the White House said in a statement.

"At the same time, the Administration remains committed to the President’s ambitious clean energy goals, as reflected in the historic Bipartisan Infrastructure Law signed last week and the House-passed Build Back Better Act that together represent the largest investment in combating climate change in American history and is a critical step towards reaching a net-zero emissions economy by 2050 and reducing our dependence on foreign fossil fuels."

Is European energy crisis self inflicted?

Europe is facing the brunt of an unprecedented energy crunch. Some call it a crisis and term it comparable to the Arab oil embargo of the 1970s, while others classify it self-inflicted. Brent crude is being traded at a 5 year high of US$84 per barrel, while spot natural gas prices are up more than 500% YoY. 

This is forcing gas to coal switching and putting the brakes on the EU’s green energy transition. Resurgent energy demand post-Covid, extreme weather conditions, supply chain disruptions and poor regional and global stockpiling have all contributed to Europe’s current crisis. Russia’s supremo Vladimir Putin may have a reason to pop a champagne bottle in view of the EU’s sanctions on the Kremlin. He says that Europe had created a self-inflicted wound.

Samer Moses, Manager of Global LNG Analytics at S&P Global says, “Europe finds itself between a rock and a hard place. With global liquefied natural gas (LNG) markets tight for nearly a year, and Russia facing its own upstream and infrastructure issues, Europe's two key sources of flexible gas supply have not shown up. Given just how depleted the region's storage situation is, any tremble of bullish news, be it weather or supply outage, has the power to send markets in search of ever higher price anchors, with fundamentals dictating the market will need to balance on demand destruction, a dynamic already being seen in industry across both Asia and Europe.”

This illustrates the concerns of many energy experts about Europe’s hasty transition away from traditional base-load power sources (gas, coal, and nuclear) to intermittent renewable generation. Europe’s master plan for carbon neutrality has pushed the member states away from long-term purchase agreements and towards short-term pricing, making the crisis even more costly to energy utilities and other consumers who are now seeking alternative fuel sources. Gas exporters like Russia and Qatar are ready to cash in.

The Qatari Energy Minister, Saad Al-Kaabi stated, “we have huge demand from all our customers and unfortunately, we can’t cater for everyone.” Qatar prefers East Asian customers who pay a premium. The EU is no longer the top market. This trend is consistent with exporters around the globe. Coupled with a decrease in domestic production, such as the depletion of the giant Groningen gas field in the Netherlands, the EU is left to bid higher and higher for imports. This coincides with overall uptick in demand for LNG across the globe in an effort to use it as a bridging fuel away from hydrocarbons.

At the same time, China, too, is in the throes of an energy crisis aggravated by unprecedented flooding across the country, post-Covid supply chain disruptions, and resurgent demand. To compensate for the lack of domestic coal production China has doubled their LNG imports over the last year (another reason Europe finds itself with lower than normal supplies).  More than 20 provinces have enacted rationing to deal with the worsening situation. “Get energy supplies at any price”, ordered the ruling Politburo, highlighting the giant economy’s dependence on imported coal and gas.

Russia – though appears not to be an outright market manipulator – is well positioned to benefit from the unfolding market conditions as Europe seeks out any and all gas supplies at outrageous prices. Indeed, the gas shortage is being used by the Kremlin to tout the necessity of Nord Stream 2, an ambitious (and highly controversial) geostrategic gambit by the Kremlin to pump 55 bcm of gas directly into Germany via undersea pipe. The project may be framed by certain German manufacturers and Russian policymakers as a boon for Europe’s energy security, but the reality is the pipeline will only make the EU more dependent on – and vulnerable too – the whims of Russia’s state-owned Gazprom.

European leaders were quick to claim that Russia is now weaponizing the gas markets to gain approval of the Nord Stream 2. Currently, Gazprom sends piped natural gas through Ukraine. A new pipeline would circumvent the embattled country. By law, Russian energy producers must satisfy domestic demand prior to exporting, meaning that a missing volume of exports could be attributed to domestic stockpile shortages.

IEA Executive Director Fatih Birol has claimed that “Russia could do more to increase gas availability to Europe and ensure storage is filled to adequate levels in preparation for the coming winter heating season.” Birol went on to say a further 15% could be supplied by Russia immediately.

A staunch pro-Russia actor, former chancellor of Germany Gerhard Schröder published an article claiming that the Russian government is incapable of manipulating the markets: "Anyone who conducts a serious study states: the reasons for the rise in prices should be sought in the international market - increased demand, global trends in the world market, and weather."

As the EU sought to decarbonize their energy infrastructure, Brussels failed to establish a reliable baseline capacity for electricity generation. Today, without the ample nuclear, coal, and gas power stations, Europe would be a dark and cold place indeed. Moreover, they lack sources of energy for low renewable periods like the “windless summer” of this past year in the UK. Low wind speeds and cloud cover are becoming more unpredictable as climate change progresses, and the lack of base-load generation has resulted in the current crisis.

Some of the reactions were to purchase alternative fuels such as coal, a fuel source that produces double the carbon emissions of natural gas. This defeats the purpose of energy transformation.

The United Kingdom, France and Spain have all issued new price ceilings. France has gone a step further and announced a one billion euro investment in nuclear power by the end of the decade.

Germany, despite all rationality, will decommissioned nearly all its reactors next year, while betting on wind and solar, and may soon be forced to bend knee to Russia, and therefore Lord Putin, by embracing Nord Stream 2, for their energy needs. Jack Sharples, a research fellow at the Oxford Institute of Energy Studies had this to say:

“The only way that we will know that for sure is if we see that Russia suddenly pull some spare gas out of their back pocket that we didn't know they had as soon as the Nord Stream 2 commercial operation is approved… Conversely, if/when Nord Stream 2 is approved and launched, we suddenly see gas transit via Ukraine drop to very low levels, that could be an indicator that Gazprom really don't have anything spare and that actually the purpose of Nord Stream 2 is to simply displace Ukraine.”

Depending on Russia to fill the energy supply gap is a risky proposition. But perhaps even more short-sighted is Europe’s unwillingness to partner with the United States beyond short-term contracts. Refusal to engage in long-term purchase agreements has led Europe to fall behind Asia as America’s top destination for LNG.

The energy crisis unfolding in Europe has many drivers, but EU green policy hubris and Russian hard-nosed energy poker are the key. The main lesson is: one cannot will energy transformation into reality without building ample, reliable and economically viable baseline generation capacity.

 

Suez Canal may remain closed for days and weeks

The Suez Canal Authority (SCA), which had allowed some vessels to enter the canal in the hope the blockage could be cleared, said it had temporarily suspended all traffic on Thursday.

“We can’t exclude it might take weeks, depending on the situation,” Peter Berdowski, CEO of Dutch company Boskalis which is trying to free the ship, told the Dutch television program “Nieuwsuur”.

A total of 156 large container ships, tankers carrying oil and gas, and bulk vessels hauling grain have backed up at either end of the canal, Egypt’s Leith Agencies said, creating one of the worst shipping jams seen for years.

“It is like an enormous beached whale. It’s an enormous weight on the sand. We might have to work with a combination of reducing the weight by removing containers, oil and water from the ship, tug boats and dredging of sand.”

Shipping experts say that if the blockage is not cleared in the coming days, some shipping may re-route around Africa, which would add roughly a week to the journey.

“Every port in Western Europe is going to feel this,” Leon Willems, a spokesman for Rotterdam Port, Europe’s largest, said. “We hope for both companies and consumers that it will be resolved soon. When these ships do arrive in Europe, there will inevitably be longer waiting times.”

Consultancy Wood Mackenzie said the biggest impact was on container shipping, but there were also a total of 16 laden crude and product oil tankers due to sail through the canal and now delayed.

The tankers were carrying 870,000 tons of crude and 670,000 tons of clean oil products such as gasoline, naphtha and diesel, it said.

According to oil analytics firm Vortexa, Russia and Saudi Arabia are the top two exporters of oil through the canal, while India and China are the main importers.

Joanna Konings, senior economist, International Trade Analysis at Dutch bank ING, said the impact on the world economy would be limited if it did not drag on since the container shipping industry was used to days of delays.

But Germany’s BDI industry association was concerned. Deputy Managing Director Holger Loesch said earlier delays were already impacting production, with industries depending on raw materials or construction supply deliveries particularly affected.

About 16% of Germany’s chemicals imports arrive by ship via the Suez Canal and the chief economist for the association of German chemicals and pharmaceuticals producers VCI, Henrik Meincke, said they would be affected with every day of blockage.

Bernhard Schulte Ship Management (BSM), the technical manager of Ever Given, said dredgers were working to clear sand and mud from around the blocked vessel while tugboats in conjunction with Ever Given’s winches work to shift it.

Japanese ship owner Shoei Kisen apologized for the incident and said work on freeing the ship, which was heading to Europe from China, “has been extremely difficult” and it was not clear when the vessel would float again.

The owner and insurers face claims totaling millions of dollars even if the ship is refloated quickly, industry sources said on Wednesday. Shoei Kisen said the hull insurer of the group is MS&AD Insurance Group while the liability insurer is UK P&I Club.

Crude oil price caught between Covid and green energy options

Prospects for global oil products markets this year are in flux, with major uncertainties surrounding the pace of vaccination program, rationalization in refining and the adoption of alternative fuels. Most forecasts for products demand and prices have been steadily revised upwards as vaccination programs have got underway and this has created positive market sentiment.

Argus' global head of oil products Stephen Jones told the forum held recently. Any actual demand recovery will depend on how quickly governments lift lockdown measures. One major unknown is how well the vaccines will deal with new variants of Covid-19.

In Europe, major oil products margins to the North Sea crude benchmark coalesced around $5/barrel by the end of January, according to Argus' European oil products editor Elliot Radley. This came in between a third and a half of their five-year averages.

A recovery toward pre-pandemic margin levels could be stimulated by lifting of lockdown measures and by major cuts to European production. Low margins have forced Europe's refiners to begin a phase of rationalization, and almost one million barrel per day of crude distillation capacity is either mothballed, shut down permanently or marked for various conversions to renewable-fuel processing.

European utilization has increased marginally since the second half of 2020, but remains close to 30-year lows, said Radley, with many refineries either offline or operating close to technical minimum rates. This reflects an oversupplied market, and oil product inventories are close to 30-year highs.

The third major uncertainty surrounding is how quickly environmental policies are adopted internationally, said Argus' head of European business development Josefine Ahlstrom. Argus Consulting — a division of Argus Media that provides forecasts and analyses separate and independent of Argus' news and price-assessment business — expects electric vehicles will make up 20% of the European vehicle fleet by 2030 and 50% by 2040. This could reduce gasoline demand by a third by 2030 as compared to 2019 levels.

Diesel demand is likely to be safer because commercial vehicles, which are more likely to retain internal combustion engines, make up a greater share of demand.

The EU's Renewable Energy Directive (RED) II calls for 14% of transport energy to be renewable by 2030, although this target could be increased as member states aim to meet ambitious greenhouse gas (GHG) emission targets. In the United States, the recent change of presidency could signal a revival of political momentum behind environmental legislation.

Overall, oil products demand is likely to fall slightly, and the share of renewables to increase rapidly.

Crude oil outlook remains gloomy

Oil prices declined after climbing to the highest in more than a year. Prices fell for a second day on Friday, retreating further from recent highs, as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather and power outages. 

US energy firms during this past week cut the number of oil rigs operating for the first time since November 2020.

Brent crude futures ended the session down 1.6% at US$62.91/barrel, while US benchmark, West Texas Intermediate (WTI) fell 2.1%, to settle at US$59.24. For the week, Brent gained about 0.5% while WTI fell about 0.7%. This week, both benchmarks had climbed to the highest in more than a year.

Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration. Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.

Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold. Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume.

While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warm-up, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output.

A point worth noting is that oil prices fell despite a surprise drop in the US crude stockpiles, before the big freeze hit. Inventories fell 7.3 million barrels to 461.8 million barrels, their lowest since March last year, the Energy Information Administration reported on Thursday.

Vaccines and the impressive rollouts have delivered strong gains, as have the efforts of OPEC plus - Saudi Arabia, in particular - and the big freeze in Texas, which gave oil prices one final kick during the week. With so many bullish factors now priced in, it seems some of these positions being unwound.

The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed at preventing Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by Trump administration.

This breakthrough increases the probability of Iran returning to the oil market soon, although there is much to be discussed and a new deal may not be a carbon-copy of the 2015 nuclear deal.

Lately, oil prices climbed on hopes that the US stimulus package will boost the economy and fuel demand, as supplies tighten due largely to output cuts by top producing countries. The rally was also in anticipation of the US President Joe Biden meeting with a bipartisan group of mayors and governors as he keeps pushing for approval of a US$1.9 trillion coronavirus relief plan to bolster economic growth and help millions of unemployed workers.

Oil prices have risen due to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the group OPEC+. Oil prices remained buoyed by further signs that crude stocks, particularly in the US were falling. Analysts anticipate that inventories will fall further later this year as transport fuel demand revives in tandem with the easing of virus-related restrictions on travel.

OPEC this week ratcheted down expectations for global oil demand to recover in 2021, trimming its forecast to 5.79 million bpd. The International Energy Agency (IEA) said oil supply was still outstripping global demand, though COVID-19 vaccines are expected to support a demand recovery.

The (IEA) report paints a more pessimistic picture than market participants have presumably been envisaging given the current high prices. Demand data from the world’s biggest oil importer also paints a bleak picture.

The number of people who travelled in China ahead of Lunar New Year holidays plummeted by 70% from two years ago as coronavirus restrictions curbed the world’s largest annual domestic migration, official data showed.

The US drillers this week added oil and natural gas rigs for a 12th week in a row, the longest streak of additions since June 2017.

According to secondary sources, OPEC crude oil production averaged 25.50 million bpd in January 2021, up 180,000 bpd from December 2020, with output rising in top producer Saudi Arabia, as well as in Venezuela and Iran, which are exempt from the OPEC+ cuts.

China and Russia emerging key players of energy markets

Joe Biden’s presidency will hopefully not interfere with OPEC+ actions taken to rebalance oil markets, Russian Deputy Prime Minister and former Energy Minister Alexander Novak said recently.

“We can see that the new US administration is making statements contradictory to the country’s policy from the last four years,” Novak said, adding, “As far as we can see there will be more discussion of climate topics. This could affect US oil production.”

“We hope that the changes to the policy of the US administration will not have an impact on the joint actions, which, first of all, are designed to play a positive role for the global economy and energy markets,” Novak also said.

The president-elect has prioritized climate action and has threatened a ban on oil and gas drilling on federal land, which caused a vocal reaction from the industry, with the American Petroleum Institute pledging to use “every tool at its disposal” to fight this plan.

Biden has also promised to end fossil fuel and mining subsidies, which would be difficult to do with the current make-up of Congress as well as opposition from within the Democratic Party. Instituting a drilling ban for federal lands will also face challenges from opponents, but, interestingly enough, some in the oil industry are not that worried, the President cannot ban drilling on private lands, and this is where most of US drilling done.

If anything, a Biden presidency should be positive news for OPEC+ on the face of it and with his making climate change a top priority. However, Biden has already declared Russia the biggest threat for the United States and has suggested a rethink of relations with Saudi Arabia, meaning he would be hardly willing to make any moves that would benefit either of the two countries.

China Iran joint drilling

Drilling operations of the first well of the game-changing but highly-controversial Phase 11 of Iran’s supergiant South Pars non-associated natural gas field officially began lately. Significant gas recovery from the enormous resource will commence in the second half of the next Iranian calendar year that begins on 21 March 2021. The long-stalled Phase 11 development supposedly saw the withdrawal of all Chinese involvement in October 2019. In reality, though, China is still intimately involved in its development and is looking to further scale up its activities following the inauguration of Joe Biden as US President on 20th January 202.  Along with completing the crucial Goreh-Jask pipeline oil export route by the end of the current Iranian calendar year (ending on 20 March 2021), building out its value-added petrochemicals production to at least 100 million metric tons per year by 2022, and ramping up production from its hugely oil-rich West Karoun cluster of oil fields to at least one million barrels per day (bpd) within the next two years, optimizing the natural gas production from its South Pars gas field is a top priority for Iran.

With an estimated 14.2 trillion cubic meters (tcm) of gas reserves in place plus 18 billion barrels of gas condensate, South Pars already accounts for around 40 per cent of Iran’s total estimated 33.8 tcm of gas reserves – mostly located in the southern Fars, Bushehr, and Hormozgan regions – and about 80 per cent of its gas production. The 3,700-square kilometer (sq.km) South Pars sector of the 9,700-square km basin shared with Qatar (in the form of the 6,000-square km North Dome) is also critical to Iran’s overall strategy to sustain natural gas production across the country of at least 1 billion cubic meters per day (Bcm/d), with Phase 11’s target production capacity being 57 million cubic meters per day (mcm/d), and to its corollary plans to become a world-leader in the liquefied natural gas (LNG) market. 

Given the size and scope of Phase 11, it became a focal point of U.S. attention in the aftermath of its unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) in May 2018 and during the active re-imposition of sanctions toward the end of that year. “The pressure that the US put on [French oil giant] Total [which at the time of its withdrawal in the middle of 2018 from Phase 11 held a 50.1 per cent stake in the US$4.8 billion project and had already invested around US$1 billion] was enormous,” a senior Iranian oil and gas industry source told OilPrice.com. “Its ruthless handling of Total was designed by the US to show the EU [European Union] – which was trying to find a way to ignore the new U.S, sanctions – that, regardless of the EU’s efforts to avoid going along with the new US restrictions on Iran, it had better do so, or else,” he added. “On the eve of the signing of the next wave of financing for SP11, the US Treasury Department telephoned senior bankers at the bank that was organizing the money and told them that if the financing went ahead then the U.S. would instigate a full historic investigation of all of the bank’s dealings since 1979 to every country that had been blacklisted by the US, and it told the French government the same thing,” he underlined. “The US Treasury also said that all French companies would not win any major contracts with US companies whilst Total stayed in Iran, but if Total withdrew then the US would make a similar project available to it to compensate,” he said. 

Iran-Russia

Iran has stated its interest in attracting investments from Russian oil companies to help develop its oilfields, Russia’s TASS news agency said, quoting Iranian Oil Minister Bijan Zanganeh. Iran is hoping to not only attract investments into its oil industry, but looking to increase its energy cooperation with Russia to offset the harsh US sanctions that have reduced its oil exports over the last year.

Deputy Prime Minister Alexander Novak met with the Iranian Oil Minister recently. “A broad range of trade and economic cooperation matters is also successfully explored between our countries. Although this year has become a tough challenge for the whole global community, economic relations between Russia and Iran do not lose prior dynamics but become more active and meaningful instead,” Novak said.

The talks come at a time when Iran is hit particularly hard by the effects from the Covid-19 pandemic, on top of the US sanctions that have hampered Iran’s main source of income, oil exports. According to some medical professionals, the country may be quickly approaching a catastrophe, on top of the economic depression it is currently going through. For Iran, the culmination of an economic depression and an unprecedented health crisis has resulted in crime sprees, a rash of suicides, business closures, lower standards of living, substance abuse, and evictions.

All this may make Iran more amenable to energy deals that Russia proposes. China and Iran are essentially the last development firms that remain in Iran. Iran has gotten the short end of the stick when it comes to energy deals with Russia before, most notably when Iran was facing the threat of US sanctions in May 2018. Then, too, Iran was on the back-foot.

India expresses interest in investing US$20 billion in Iran

According to an IRNA report, India has shown interest in investing up to US$20 billion in Iran. This was expressed by Indian Petroleum and Natural Gas Minister Dharmendra Pradhan.

He made these remarks during Iran-India Business Round Table which was held in New Delhi. He expressed India was willing to invest in Iran’s southeastern port of Chabahar. He said his country would make such an investment ‘if conditions become conducive’.
 Iranian Foreign Minister Mohammad Javad Zarif, senior managers from Iranian and Indian chambers of commerce, banks, and other sectors including industry, trade, and science attended the business forum.

Pradhan also said that the two countries can increase bilateral oil and gas trade. He, in addition, showed his country’s willingness to participate in the development of Iranian Farzad-B gas field in the Persian Gulf.

During the meeting, the chairman of Iran Chamber of Commerce, Industries, Mines and Agriculture, Gholam-Hossein Shafei, said the current level of bilateral trade is not proportional to potentialities, saying that the value of trade can reach US$30 billion in the future.

Shafei underlined that possessing huge energy resources, the Islamic Republic can act as a reliable source to meet India’s need for energy.

He also mentioned transportation sector as one of the possible fields of cooperation between the two countries, adding that the recently signed trilateral agreement between Iran, Afghanistan, and India to develop the Iranian port of Chabahar can change Iran into the region’s transportation hub.

Highlighting the significance of Chabahar port in the expansion of Iran-India relations, the Iranian foreign minister noted that the port can be beneficial not only to Iran but also to all other regional countries.
Referring to the importance of banking relations as the backbone of economic ties between the two countries, Zarif expressed hope that relations would continue developing in the future.

On the first leg of his three-nation tour of Asia, Zarif arrived in New Delhi to take part in the Heart of Asia Conference on the situation in Afghanistan and also to hold talks with high-ranking Indian officials.

Iranian foreign minister is accompanied by a 70-member high ranking politico economic delegation who will take part in trade and business meetings with India, China, and Japan. 

A wake up call for ruling junta of Pakistan

Pakistan has an agro-based economy and the country is heavily dependent on imported energy products. As country’s trade deficit is mounting there is need to revisit government policies. The other alarming factors are: 1) extensive borrowing to meet the budget deficit and 2) deceleration in remittances. The added problem is that with the commencement of winter industrial units, particularly textiles units are likely to be a major sufferer and exports of textiles and clothing destined to plunge.

As stated earlier, Pakistan is heavily dependent on imported energy products; any hike in crude oil prices does not bode well for the country, though capital market analysts term the hike good for E&P and downstream companies listed at Pakistan Stock Exchange (PSX). A stronger dollar is likely to keep commodity prices in check, but also expected to make imported commodities more expensive.

Pakistan Steel is closed for months and there are no signs of its commencing production in the near future. Its price has posted 16.4%MoM increase in November, as Chinese producers re-align supply and the government implements a policy of curtailing supply.  This is likely to cause further hike in steel price, which does not bode well for Pakistan

Pakistan is a major user of coal, in cement industry. Coal price drop on Chinese relaxation on mining controls: After reaching a 5-year high, coal price has fallen to US$83.5/ton as the government asked the coal miners to lift up output till the end of end of winter heating season to counter the surging price. The coal price decline has remained slower as the Chinese coal producers were unable to ramp up production quickly due to medium-to-long term supply contracts and time to bring back coal mines into production. Nonetheless, normalizing of seasonal demand post-winters, will likely witness further fall in coal price as China will continue its policy to do away with coal based energy.

Fertilizer is one of the major industries of Pakistan and currently suffers from poor capacity utilization. Added to this is, extremely low international prices of urea, affecting the earnings of local manufacturers. In November its prices rose to US$224/tons as compared to US$201/tons a month ago.  While continuing to recover from lows of US$172/ton seen in July 2015, urea prices remain down 8%YoY as oversupply and weak demand continue. On the domestic front, recovery in international prices is likely to enhance pricing power of local manufacturers, who are already plagued by lower off-take. However, further recovery in off-take remains more likely to be a product of price reduction.

Global cotton prices during November remained higher as compared to last year (up 14%YoY) on the back of continued price recovery. The monthly USDA report featured an increase in global annual production up to 103.3 million bales and virtually no change to world mill-use, resulting in additions to global stocks. Following the global trend, prices in the domestic market remained on the higher side in November. Despite higher-than-expected phutti arrivals, prices of quality cotton move higher because of sustained buying by mills and spinners. Moreover, temporary ban on cotton import from India kept demand of local cotton robust.

This year Pakistan is likely get another bumper crop of wheat but of no benefit. While the surplus can’t be exported, post harvest losses are feared to increase due to inadequate storage facilities. Lack of supporting policies has failed in attracting investors to construct modern warehouses and collateral management companies. Absence of modern silos results in up to 20 percent post harvest losses. Saving this could boost income of farmers and also bring down price of staple grain n the country.

ODGC profit declines by 28.5 percent

Pakistan’s largest exploration and production enterprise, Oil & Gas Development Company (OGDC) has released its half yearly financial results for the period ended 31st December 2015. OGDC profit eroded by 28.5 per cent but the Board of Directors was generous enough in approving payment of second interim dividend of 12 percent, taking payment during first half to 27 percent.

OGDC has posted profit after tax of Rs34.206 billion (EPS: Rs7.95) during the period under review as compared to net profit of Rs47.828 billion (EPS: Rs11.12) for the corresponding period a year ago, down by 28.5 percent.

Net sales of OGDC plunged to Rs86.186 billion during July-December 2015 from Rs118.64 billion during the same period 2014, a decline of 27.35 percent.

OGDC has presence in the four provinces, largest portfolio of hydrocarbon reserves – 59 percent of oil and 36 percent of gas as at 30th June 2015.

OGDC’s average daily production is 40,028 barrel oil, 1,116mmcf gas, 312tons LPG and 28 tons Sulphur. It contributed 28 percent to total gas and 48 percent to crude oil production