“India’s Oil Import Policy is All About Economics!”

Narendra Taneja, India’s Leading Energy Expert

As long as Russian exporters can deliver oil to our ports and our refineries at a discounted price and they take care of shipping and insurance, Russian oil will continue to flow into India. But if there are challenges in terms of shipping, then it is Russia which must find a solution as we have very limited shipping tonnage; 92% of our imported oil uses foreign ships. Russia also has a very small fleet of its own. At the same time, if we get better offers from other markets, for example from the US, Brazil, Saudi Arabia, or UAE, we will very happily go for that. We will also keep a very close eye on Iran, from where we recently bought a few cargoes, indirectly. The fact is that if Iranian oil is available at attractive rates, there are many refiners, not only in India, who are going to look at it. We are buying crude and refining and exporting to 106 markets around the world, including the US. I think for the Biden administration, particularly in this election year, their priority is to make sure that oil prices remain within a limit, and that there are no supply disruptions. India has a similar agenda. That's not possible unless you let Russian oil flow.

Oil prices have been creeping up this year - any concerns?

There is a bit of anxiety in India around higher crude prices, especially when our economy is doing so well. The perception overall is that India is headed for massive growth in the coming years. We do wonder why oil prices are going up because we don't see any upside in global demand, and we also don't see any major supply disruptions. We know that exports from Saudi Arabia and Iraq in the last few weeks have gone down a bit by design, but even factoring that in, we don't really see much reason for higher prices. We have also seen reports that Iran is going to boost oil production, for their domestic market and export, so it's a confusing picture. My own sense is that $85 is not very sustainable unless there’s some major development in demand. For the next two or three months at least, I see absolutely no reason for Brent prices to be anywhere above approximately $80/bl.

What new economic reforms should we expect if PM Modi is reelected?

The impression is that he will win a third term and the BJP has already made a lot of promises. One of the major ones is that they’re going to make India a developed economy by 2047. And if the BJP returns to power with a slightly bigger majority, it will be able to push ahead with reforms in three key areas. The first is privatization of state enterprises which has hit roadblocks in the past. Number two are very important reforms for the agriculture sector, which again, the BJP has tried but didn't succeed. The third is reforms in the conventional oil and gas sector, which is still largely controlled by the state. Bringing in more foreign players or even domestic investors, by privatizing some of the major companies, especially in the downstream sector. All these reforms will make India an even more attractive destination for those with capital and technology and who are looking for collaboration. We will see massive reforms in all key sectors in the next three years.

Watch full Interview here!

Over the last week, Gulf Intelligence has held high-level interviews with energy experts in the Middle East, Asia, Europe, and the US. This intel is harvested from the exclusive briefings.

ENERGY MARKETS VIEWS YOU CAN USE

Kieran Gallagher   		        		      
Managing Director, Vitol Bahrain E.C         

What’s behind the strength in the oil price the past week?

It’s a combination of geopolitical risk which is rerouting a lot more oil around the Cape, tighter looking fundamentals, and continuing attacks on Russian refineries which have been supportive of the fuels market. All of this means that we’re not building in the pricing centers and so the market becomes more backwardated. We are seeing growth of oil volume on water, but not on land. So, there’s now a more confident belief in a higher priced market, supported around $85/bl.

How tight are middle distillates?

We’re seeing 78% of LR1 and LR 2 vessels which typically come from AG west coast India, diverting around the Cape, so that naturally gives a lift, in addition to the attacks on the Russian refinery sector. We’re also going into a period of Persian New Year, Easter holidays and EID holidays, so that demand for transport fuels will also be supportive. Global jet fuel demand has gone back to averaging around 6.9mn b/d over the last four weeks, back at 2019 levels, and we see more growth in Q2, so the outlook for products is good. The one caveat against that is relatively healthy production from the new Middle East refineries, which is adding some weight to the diesel market.

Impact of tighter G7 sanctions on Russian shipping?

We are seeing a lot of more Russian oil on water that is struggling to find its way into end user homes over the last month, particularly on the clean products side, and because of the additional ships that have been named and sanctioned, we are seeing an incredible spike in the clean tanker market. Just in the last 36 hours, we saw a fixture of $8 million from the AG to the West on an LR2 vessel, which is a fresh high price.

Marc Ostwald   	      
Chief Economist & Global Strategist ADM Investor Services International        

Outlook for Russia to continue to get its oil to market?

The world needs Russian oil and China is critical to this in terms of the big switch from west to east for the direction of Russian oil supplies. The Chinese economy is still basically firing on a lot of cylinders and if you look at the problems that they’ve got with trying to up coal output domestically, which has dropped 5%, they’re going to need as much oil as they can get as a fall back for the power sector. That should also help to prop up gas demand to a certain extent. So, Russia will continue to concentrate a lot on China, and China for the time being, will continue to be a willing buyer.

What’s behind the recent elevation in the oil price and is it sustainable?

Weve been quite dismissive over the last six months on any risk premium in geopolitical terms, particularly about the disruption in the Red Sea and attacks on Russian oil refineries. Now, those events are being taken a bit more seriously, but it is still being seen as a temporary risk premium because the other side of the coin, the global economic outlook would have to look a lot better and that’s simply not there - it’s too patchy. In broad terms, commodity markets have been beaten very heavily, with a couple of exceptions, but people are also looking at the global economy and saying it’s not as bad as we thought. So, there is an adjustment in sentiment but we’re not in a situation where we’re going to test $90 in a meaningful way.

Mukesh Sahdev     		      
SVP, Head of Downstream/Oil Trading, Rystad Energy        

Russia’s refining system is now finally under strain.

The Ukrainian drone attacks are impacting almost 2.8 million barrels of capacity from five or six refineries. As a result, Russia will not be able to process around 300,000-400,000 b/d of crude. The question then becomes whether Russia can export the crude they don’t consume, and it probably does not have sufficient storage systems to manage this transition. And it is also probably the reason they will be able to commit more to OPEC+ cuts because they won’t be able to export so easily.

Outlook for jet fuel?

We should brace for some real spikes in jet. When we get the usual 500,000-600,000 b/d growth of seasonal jet demand, Europe for example usually manages by importing those barrels. But with the disruptions in the Red Sea, it might struggle with those imports and so be forced to make its own jet. Typically, you can only make 8-9% jet from your refining system but the call on Europe could be to make 10-12%. To make one barrel of jet, you need ten barrels of crude, and that crude is not there because of OPEC+ cuts. Add to that the lack of Russian refined exports, so we should watch for possible jet price spikes.

Trajectory for oil prices?

There are two reasons why it’s unlikely we will have a spike in crude prices. We have 5-7 million b/d of spare capacity which OPEC+ can bring to market if prices rally. The other reason is Middle East refiners, which have been ramping up refining capacity since 2020, are now exporting 1.5-1.7mn b/d. That reduces the call on crude by other countries because they don’t have to run their refinery system to have products. So, in a sense, Middle East producers are working against themselves for any increase in the crude price as if they were not running those extra product barrels, the rest of the world would be ready to pay higher prices for crude to produce their own.

Jamie Ingram  		      
Senior Editor Middle East Economic Survey        

How much of this upwards move in oil prices is due to geopolitics?

Certainly, Ukraine’s attacks on Russian refineries are going to be having an impact, with about 350,000 b/d offline now. But we also have fundamentals at work with the extension of OPEC+ cuts feeding into the markets and the IEA increasing their global demand forecasts and so, expecting to see a higher call on OPEC crude. So, we’re seeing this position where supply is being constrained for longer and market signals are suggesting that demand is going to be creeping up higher than people were expecting at the start of the year.

Will that mean that we could see OPEC+ cuts rolled back in June?

Even if oil prices are in the $90’s come the June meeting, I think there’s a very good chance that OPEC+ countries will decide to continue with these voluntary cuts, and possibly through to the end of the year. If they’re making better money that way, then that would seem like a rational decision. Yes, there’s pressure from some countries, like the UAE, which is increasing its capacity, but ultimately, if the financial rewards come from continuing to keep these volumes shut in, that’s likely where they will go to. With prices sub $100, there’s not going to be much in the way of pressure coming from their buyers or from the US, to relax the cuts. We would need to see a considerable movement above $100 before we see that pressure impact decision making. However, when they do start to ease those cuts, they’ve made it very clear that it will be a gradual process, but they also haven’t finalized that exit mechanism so that will be an interesting one to watch.

How is Kuwait’s increased refining capacity impacting its exports?

The increased domestic production is impacting exports, but what’s more interesting is that last year, we saw Kuwait’s value of its refined products exports hit a record high, crossing $25 billion for the first time. That’s even more than in 2022, when we were seeing record margins on a lot of these products that they were selling. So, that’s a clear benefit for Kuwait in terms of that moving up the value chain and it shielded them a lot last year from the drop off in prices that hit other petroleum producers within the region.

Dr. Charles Ellinas   	       
CEO, Cyprus Natural Hydrocarbons Co. & Senior Fellow, 
Global Energy Center - Atlantic Council        

Is the instability in the Middle East impacting Egypt’s East Med gas projects?

Irrespective of geopolitics, Egypt is having problems in terms of increasing its gas production. The Al Zoor field is now apparently not the biggest anymore. New data shows that it could be a third of the 30tcf reported back in 2016, and by the end of this year, it’s expected that production will go down 50% from its peak, which leaves Egypt in a dire situation. As a result, Egypt is looking for more gas, and despite the Gaza problems, exports of gas from Israel to Egypt carry on increasing. They have now reached a record. The limitation is pipelines rather than gas availability because production at Tamar and Leviathan has expanded, with reserves higher than they thought. And in Cyprus, ENI and probably Chevron are expected to announce plans within a few months to export gas to Egypt.

Outlook for Europe as the ECB considers its position on interest rates?

The ECB is warning that we should expect more insolvencies in Europe and more upheaval in energy intensive industries. Last year, heavy industry output dropped by 1.3%, and it’s expected to carry on dropping despite low gas prices. The German economy is still having problems. There is also a feeling that Europe is losing a bit of direction with elections coming and so diverting the attention of politicians.

SOUNDINGS WEEK IN REVIEW

Tune in to the Energy Markets Commentary Week in Review. Spotify, Apple Podcast, Soundcloud