By K Raveendran
The decision by the Union government to tie local gas prices to international prices comes at a time when global prices are on a downward trend and this is great news for consumers who have hitherto been at the receiving end of higher prices as well as their administration.
Under the new arrangement, the price of natural gas will be 10 percent of the monthly average of the Indian crude basket, a weighted average of Dubai and Oman crude as well as Brent Crude prices.
High oil prices were supporting higher gas prices until recently, but bearish readthroughs are seen in the commodity complex from the nearly 12 percent week-on-week drop in Brent prices, reflecting materially weaker macro sentiment following the surprise contraction in China’s Manufacturing Purchasing Manager Index (PMI) in April and the interest rate escalation by the US Federal Reserve.
Global LNG imports hit nearly 11.5 million tonnes in April – an all-time high by some measures – as lacklustre demand in Asia kept marginal cargoes firmly trained on Europe. With the launch of the joint purchasing mechanism for EU countries, much of the upside risk to prices from intra-EU bidding wars has been mitigated. Coupled with this is the mild weather over much of demand in Asia has remained low key, given the injection season and, similar to Europe, extremely comfortable LNG inventories in East Asia that may keep buyers on the sidelines for several months. Although LNG imports into South Asia increased 15 percent on the year to April, the market’s bearishness quantified by the narrowing spread between spot LNG prices in East Asia and India served as a deterrent.
India, the world’s fourth largest LNG importer, is also expected to import lesser quantities to FY18-FY19 levels in the current financial year ending March 2023.In-bound stood at 27,439 million standard cubic meters (MSCM) and 28,740 MSCM during FY18 and FY19, respectively. According to Global Commodity Insights, India’s LNG imports in 2022 were the lowest since 2017. This was the steepest fall on record and the first decline covering two consecutive years in India’s two-decade history as an LNG importer, according to International Energy Agency. Falling margins have been a major factor that slowed down imports.
The current pullback in oil prices to below $80 per barrel of Brent is seen as wrapped into recession fears as credit conditions in the US and many other economies tighten, and uncertainty looms over the pace of Chinese demand recovery, according to energy specialists Rystad.
The US economy slowing to 1.1 percent annualized first quarter 2023 growth versus 2.6 percent in the previous quarter on an annualized basis and this is seen as a potential harbinger that higher borrowing costs and rising prices may stall economic growth. China targeting 5 percent growth target for its GDP, in a serious of continuous downwards revisions, also puts into question how much of a bull China can deliver for economic growth and oil prices.
India has been a major player in determining the shape of the international oil market, with its imports from Russia changing the market balance drastically. Thanks to ever increasing Russian imports, oil imports from OPEC dropped to an all-time low of 46 percent in April, down from 72 percent a year ago. Russia now accounts for 36 percent of India’s oil imports, versus less than 1 percent before Moscow launched its war on Ukraine. Imports from Russia have surpassed the combined purchases from Iraq and Saudi Arabia.
Experts point out that May is generally a noisy month in terms of both macro data and fundamentals seasonality that sees subdued demand both from refineries undergoing maintenance and from consumers who are waiting until the Northern Hemisphere summer to travel. Accordingly, they do not see current weak demand as signalling weak prices into the high demand summer season.
They further point out that the current month will show how much of the 1.1 million barrels per day (bpd) of its voluntary cuts OPEC+ will deliver, as well as how much Russian crude and diesel continue to flood the market and fill up inventories. (IPA Service)
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