Russian oil getting into Europe via India

Record high imports of crude oil from Russia in fiscal 2022-23 helped Indian refiners boost exports of diesel and jet fuel to Europe as the continent shunned Russian products, ship-tracking data from Kpler and Vortexa showed.

Access to cheap Russian crude has boosted output and profits at Indian refineries, enabling them to export refined products competitively to Europe and take bigger market share.

Europe typically imported an average of 154,000 barrels per day (bpd) of diesel and jet fuel from India before Russia's invasion of Ukraine. That increased to 200,000 bpd after the European Union banned Russian oil products imports.

India's imports of Russian crude in March rose for the seventh straight month to end out the fiscal year as top supplier to India, displacing Iraq for the first time, the data showed.

Indian refiners, which rarely bought Russian oil previously due to high transport costs, imported 970,000-981,000 bpd of it in 2022/23, accounting for more than a fifth of overall imports at 4.5-4.6 million bpd, Kpler and Vortexa data showed.

Imports from Iraq slipped to 936,000-961,000 bpd from nearly 1 million bpd in 2021/22, the data showed.

While Russia's flagship grade Urals makes up the bulk of India's purchases, refiners are also importing lighter grades from Russia's Far East and Arctic grades such as Sokol, Arco, Novy Port and ESPO blend.

Russia's largest oil producer Rosneft and top Indian refiner Indian Oil Corp have signed a term deal to substantially increase and diversify oil grades delivered to India.

As Europe's ban kept Russian products out, India's diesel exports to the continent rose 12-16% to 150,000-167,000 bpd in the last fiscal year, the Kpler and Vortexa data showed.

That accounted for about 30% of India's total gasoil exports, up from 21-24% a year earlier, the data showed.

The key European buyers of Indian diesel are France, Turkey, Belgium and the Netherlands, the Kpler data showed.

Europe accounted for about 50% of India's jet fuel exports, or around 70,000-75,000 bpd in 2022/23, up 40,000-42,000 bpd the previous year, the data showed.

Besides increasing exports to Europe, India has also boosted vacuum gas oil (VGO) shipments to the US.

The US took about 11,000-12,000 bpd of VGO in 2022/23, or 65-81% of India's overall exports of the refining feedstock that can be processed further to produce fuels such as gasoline and diesel, the data showed.

In 2021/22, India exported only around 500 bpd of VGO to the United States.

However, India's total annual refined fuel exports in 2022/23 were lower than a year earlier as some refiners shut units for maintenance in later half of 2022.

 

Saudi-Iranian foreign ministers to meet in Beijing on Thursday

Saudi Arabian Foreign Minister Prince Faisal bin Farhan and his Iranian counterpart Hossein Amir Abdollahian are scheduled to hold their historic meeting in Beijing on Thursday, April 6, Asharq Al-Awsat reported.

The Beijing meeting preceded three telephone conversations between the two ministers in recent weeks after signing the agreement, brokered by China, on March 10.

During the phone talks, the ministers discussed a number of key issues related to the resumption of bilateral diplomatic ties, such as the next steps to be taken with regard to implementation of the agreement; procedures for reopening diplomatic missions; and activating the previous agreements signed between the two countries before severing the relations.

The main purpose of the meeting is to activate the content of the landmark agreement to resume bilateral diplomatic relations, and to arrange the exchange of ambassadors after a hiatus of seven years.

According to the report, the choice of Beijing as the venue for the meeting between the Saudi and Iranian foreign ministers comes as an extension of Beijing’s positive role in reaching the agreement and facilitating communication between the two countries.

Saudi Arabia and Iran, along with China, announced in a joint statement on March 10 that the agreement will be implemented within 60 days. The tripartite statement emphasized the respect for the sovereignty of states and non-interference in their internal affairs.

It also affirmed the activation of all joint agreements between Saudi Arabia and Iran, including the security cooperation agreement, and the cooperation agreement in the fields of economy, trade, investment, technology, science, culture, sports and youth.

The signing of the historic agreement to restore diplomatic ties took place after several rounds of negotiations between Saudi Arabia and Iran in Baghdad and Muscat, and these were followed by the last round of negotiations held in Beijing from March 6 to 10.

In the talks, the Saudi delegation was headed by Minister of State, Member of the Cabinet and National Security Adviser Dr. Musaed Al-Aiban while the Iranian delegation was headed by Secretary General of the Supreme National Security Council Admiral Ali Shamkhani.

This historic initiative came after seven years of severing relations between Saudi Arabia and Iran, following the attack on the Saudi embassy in Tehran and the Saudi consulate Mashhad, in January 2016, and ransacking and burning of its properties. These incidents prompted the Saudi Ministry of Foreign Affairs to ask Iranian diplomats to quit the Kingdom within 48 hours while calling back its diplomats from Iran.

Venezuela March oil exports rise

Venezuela's oil exports rose in March to the highest monthly average since August last year, boosted by a resumption of loadings after an export freeze and by rising cargoes assigned to Chevron Corp.

State oil company PDVSA has reinstated two export contracts after a January freeze by new boss Pedro Tellechea, a medium-term contract with Hangzhou Energy, and another with Portugal-based Adinius Sociedade de Servicios.

Those two customers accounted for the largest portion of exports, a sign that PDVSA is consolidating contracts it had with dozens of little-known firms responsible for the loss of billions of dollars from failed payments into fewer agreements.

Oil swap deals with Chevron, Cuba's state company Cubametales and Iran's Naftiran Intertrade Co (NICO) - and most exports of oil byproducts - have continued flowing without interruption during the freeze.

PDVSA and its joint ventures in March shipped a total of 774,420 barrels per day (bpd) of crude and fuel, mainly to China, a rebound from the low figures registered in the two previous months, the documents and data showed.

Eight very large crude carriers (VLCC) set sail from Venezuelan ports, which eased a tanker bottleneck that had built up since early 2023.

Chevron received and exported about 115,000 bpd of Venezuelan heavy crude to the US, an increase from about 80,000 bpd in February.

PDVSA and Venezuela's oil ministry did not reply to a request for comment. Hangzhou Energy and Adinius Sociedade de Servicios could not be reached for comment.

An Iranian supertanker, the Sea Star III, arrived in Venezuelan waters on the weekend carrying 2.1 million barrels of condensate to dilute PDVSA's oil, according to monitoring firm TankerTrackers.com. The vessel, owned by National Iranian Tanker Company, had its tracker offline since February when it set sail from Assaluyeh.

Venezuela also exported 276,000 tons of oil byproducts, a decrease from the 347,000 tons of the previous month and from 727,000 tons in January, as shipments of petroleum coke declined.

As part of an extended audit of its supply contracts, PDVSA is reviewing accounts of Geneva-based firm Maroil Trading, owned by Venezuelan shipping magnate Wilmer Ruperti, over outstanding debts from petroleum coke supply. Ruperti last week said the situation "was resolved."

All contract revisions are part of a widespread anti-corruption probe that has resulted in the arrest of more than 40 officials and businessmen, according to the Venezuelan attorney general's office. Powerful Oil Minister Tareck El Aissami resigned last month amid the investigation.

 

 

OPEC Plus still controls oil supply

The surprise oil output cuts announced on Sunday by OPEC plus members illustrate their greater power over the market, given limited supply growth by other producers such as US shale firms and still-growing demand despite the energy transition.

Oil has jumped to US$85 a barrel since members of the Organization of the Petroleum Exporting Countries and allies including Russia announced production cuts of about 1.16 million barrels per day (bpd), adding to curbs already in place.

While OPEC or OPEC Plus decisions to cut output in the past have drawn warnings that higher prices and lower OPEC Plus output would encourage US shale producers to pump more, officials have not voiced such concerns recently.

Goldman Sachs said it sees elevated OPEC pricing power - the ability to raise prices without significantly hurting its demand - as the key economic driver, and estimates the production cut will raise OPEC  Plus revenues.

"One thing is for certain, OPEC is in control and driving price and US shale is no longer viewed as the marginal producer," said James Mick, senior portfolio manager at Tortoise Capital Advisors.

"OPEC wants and needs a higher price, and they are back in the driver's seat to obtaining their wishes."

US shale oil drillers over the last two decades helped to turn the United States into the world's largest producer. But the gains in output are slowing and executives warn of future declines.

US oil and gas activity stalled in the first quarter, according to a survey, with some respondents citing higher costs and interest rates. OPEC has this year been lowering its US shale oil output forecast, having also done so in 2022.

An OPEC Plus source, asked if OPEC Plus is in the driver's seat when it comes to the oil market now said, "We are not in the passenger seat".

OPEC+ does not have a target for oil prices. The Saudi Arabian energy ministry said the voluntary output cut from the kingdom, the kingpin of OPEC Plus, was a precautionary measure aimed at supporting oil market stability.

OPEC sources have cited a lack of sufficient investment to increase supply as likely to support prices this year.

Investment is rebounding after taking a hit during the pandemic. According to the International Energy Forum (IEF), oil and gas upstream capital spending rose 39% in 2022 to US$499 billion, the highest level since 2014 and the largest ever year-on-year gain.

But, the IEF said, annual upstream investment will need to increase to US$640 billion in 2030 to ensure adequate supplies.

OPEC is pumping almost 1 million bpd less than its current output target, according to its own figures and other estimates, with notable shortfalls in Nigeria and Angola from which Western oil companies have moved away in recent years.

While non-OPEC producers are still expected to pump more in 2023, the forecast of a supply increase of 1.44 million bpd falls short of expected world demand growth of 2.32 million bpd, according to OPEC forecasts.

The International Energy Agency, which represents 31 countries including top consumer the United States, also expects demand growth to exceed supply growth, although to a smaller extent than OPEC.

In OPEC's view, investment cuts after oil prices collapsed in 2015-2016 due to oversupply; along with a growing focus by investors on economic, social and governance (ESG) issues - such as tackling climate change - have led to a shortfall in the spending needed to meet demand.

OPEC Secretary General Haitham Al Ghais, in comments to Reuters last year, attributed slower shale growth to factors including an increase in investor caution and the impact of ESG issues on the industry.

"The scope for supply growth outside of OPEC+ members is limited and in combination with tighter conditions expected later this year even before this cut was announced, there is now greater upside risk to prices," said Callum Macpherson, head of commodities at Investec.

 

US to establish new naval bases in Philippines

The Pentagon on Monday announced the locations of four new naval bases in the Philippines, securing three of the spots in the northeastern part of the island to better counter Chinese aggression in the Indo-Pacific.

The US will create two naval bases in the Cagayan province covering Luzon, the northern portion of the Philippines archipelago that lies directly across from Taiwan in the South China Sea. Naval Base Camilo Osias will be located near the municipality of Santa Ana, Cagayan. The other base in Caguyan will be near the Lal-lo Airport. Another military base, called Melchor Dela Cruz, will be located in Gamu, Isabela, also on the Luzon point. A fourth military base will be located at Balabac Island in the province of Palawan, located in the western part of the Philippines near the Spratly Islands, a major archipelago in the disputed South China Sea.

Tensions between the US and China are high over fears that Beijing will seek to take control of Taiwan in the coming years. China has also angered its regional neighbors with aggressive efforts to assert control over the South China Sea, which is crucial to global trade.

America’s new bases in the Philippines will provide a major boost to the US presence in the region, as part of efforts to neutralize China’s influence.

Pentagon Deputy Press Secretary Sabrina Singh said the expansion in the Philippines makes our training more resilient.

“It is about creating regional readiness but also being able to respond to any type of disaster or any type of humanitarian disaster that could arise in the region,” she told reporters at a Monday briefing.

Beijing has reacted angrily to the expansion of the US military in the Philippines.

A spokesperson for China’s embassy in the Philippines said the agreement will seriously endanger regional peace and stability and drag the Philippines into the abyss of geopolitical strife and damage its economic development.

 

is tantamount to quenching thirst with poison and gouging flesh to heal wounds,” “Creating economic opportunities and jobs through military cooperation the spokesperson said after US Under Secretary of State Victoria Nuland traveled to the Philippines last month.

Washington already operates five military bases in the Philippines on a rotational basis, meaning they cannot station troops there permanently.

Those camps are located near Manila and in the south and east of the Philippines — but none were in the northern Luzon province, which is more strategically located.

The US reached an agreement for the bases with the Philippines in 2014 called the Enhanced Defense Cooperation Agreement.

Defense Secretary Lloyd Austin announced the four new military bases in February during a trip to Manila, the capital of the Philippines, but did not disclose the planned locations.

Austin at the time called it a big deal and a sign of the ironclad partnership with the Indo-Pacific nation.

The US has already pledged US$82 million for improvements at the existing five bases in the Philippines and intends to invest more funds to get the new camps up and running.

 

 

Why is OPEC Plus cutting oil output?

OPEC and its allies, including Russia, agreed on Sunday to widen crude oil production cuts to 3.66 million barrels per day (bpd) or 3.7% of global demand. The surprise announcement helped push up prices by US$5 per barrel to above US$85 per barrel.

Here are the main reasons why OPEC Plus is cutting output:

Saudi Arabia has said voluntary output cuts of 1.66 million bpd on top of the existing 2 million bpd cuts were made as a precautionary measure aimed at supporting market stability.

Russian deputy prime minister Alexander Novak said the Western banking crisis was one of the reasons behind the cut as well as interference with market dynamics, a Russian expression to describe a Western price cap on Russian oil.

Fears of a fresh banking crisis over the past month have led investors to sell out of risk assets such as commodities with oil prices falling to near US$70 per barrel from near an all-time high of US$139 in March 2022.

A global recession could lead to lower oil prices. Redburn research said the size of the latest cut was probably overdone unless OPEC feared a major global recession.

The cut will also punish oil short sellers or those who bet on oil price declines.

Back in 2020, Saudi Energy Minister Prince Abdulaziz bin Salman warned traders against betting heavily in the oil market, saying he would try to make the market jumpy and promising that those who gamble on the oil price would be ouching like hell.

Prior to the latest cut, hedge funds had reduced their net position in US benchmark WTI oil to just 56 million barrels by March 21, the lowest since February 2016.

Their bullish long positions outnumbered bearish short ones by a ratio of just 1.39:1, the lowest since August 2016.

"The latest cut would hurt those who bet against oil really badly," said a source familiar with OPEC+ thinking.

Many analysts said OPEC Plus was keen to put a floor under oil prices at US$80 per barrel while UBS and Rystad predicted a jump back to US$100.

However, excessively high oil prices represent a risk for OPEC Plus as they speed up inflation, including for goods the group needs to purchase.

They also encourage speedier production gains from non-OPEC members and investments in alternative sources of energy.

Goldman Sachs said OPEC's power has increased in recent years as US shale responses to higher prices have become slower and smaller, in part because of pressure on investors to stop funding fossil fuel projects.

Washington has called the latest move by OPEC Plus inadvisable.

The West has repeatedly criticized OPEC for manipulating prices and siding with Russia despite the war in Ukraine.

The United States is considering passing legislation known as NOPEC, which would allow the seizure of OPEC's assets on US territory in the event market collusion is proved.

OPEC Plus has criticized the International Energy Agency, the West's energy watchdog in which the United States is the biggest financial donor, for releasing oil stocks last year, a move it said was necessary to bring down prices amid fears sanctions would disrupt Russian supply.

The IEA's prediction never materialized though, prompting OPEC Plus sources to say it was politically driven and designed to help boost US President Joe Biden's ratings.

The United States, which released most stocks, said it would buy back some oil in 2023 but later ruled it out.

JP Morgan and Goldman Sachs said the US decision not to buy back oil for reserves might have contributed to the move to cut output.

 

US natural gas output rising, despite sinking prices

US natural gas prices last week plunged to a 30-month low, slipping below US$2 per million British thermal units (mmBtu) for the second time this year, even as some producers have cut drilling to stave off further convulsions.

Since the start of the year, US gas futures have collapsed by about 50%, a record drop for a quarter, on rising output and mostly mild weather so far this winter that kept heating demand low and allowed utilities to leave more gas in storage than usual.

There seems little chance of stopping output from continuing to grow. The amount of gas in US storage, meanwhile, sits about 21% higher than is normal for this time of year, and that surplus will set up US inventories to reach record highs before next winter's heating season.

Big gas producers including Chesapeake Energy and Comstock Resources Inc are reducing their drilling. But gas that comes up with oil will continue to rise in the biggest shale fields. And oil producers are not cutting back.

"About a third of US gas production is associated gas - produced from oil wells," said Jacques Rousseau, a managing director at research firm ClearView Energy Partners LLC. "This production is unlikely to decline given current oil prices."

The Permian basin of Texas and New Mexico, the nation's biggest shale field, is hitting record monthly highs in oil output this year, according to US Energy Information Administration (EIA) data. Gas from the Permian also has climbed to record highs every month this year.

While US gas futures were down by 50% in the first quarter of 2023, at US$2.22 per mmBtu, they are not low enough to forestall output gains, say analysts.

"Gas prices are begging the market to cut back on supply, amid falling US consumption and constrained LNG export options," said Stephen Ellis, an energy strategist at Morningstar Research Services LLC.

US gas production remains on track to hit 100.67 billion cubic feet per day (bcfd) this year, up from last year's record 98.09 bcfd, according to the US government.

Projected US gas usage, including exports, will ease to 107.3 bcfd this year from a record 107.4 bcfd last year due to expected declines in domestic consumption from residential, commercial, industrial and power generation customers.

That usage drop comes despite an expected 14% increase in US liquefied natural gas (LNG) exports now that Freeport LNG's export plant in Texas has returned to production after an eight-month outage.

When operating at full power, Freeport LNG, which shut after a fire in June 2022, consumes about 2% of total US gas supply.

Despite low gas prices, US drillers have 160 rigs seeking gas up 16% from a year ago, according to data from Baker Hughes Co.

Gas output in the Haynesville shale field in Arkansas, Louisiana and Texas where Chesapeake and Comstock are dropping rigs, also is on track to reach fresh highs in March and April, according to the EIA.