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Rising Oil Costs May Be Problematic But Economic Outlook Is ‘Bright’

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Rising oil prices are a concern for the Indian economy but its outlook remains bright after better September monsoons and a retreat in the prices of some key food items, the government said in its monthly economic report on Friday.

The comment comes as oil prices rose to 10-month highs earlier this week before easing, on extended production cuts from key suppliers Saudi Arabia and Russia.

India, the world’s third-largest energy importer, purchases more than 80 per cent of its crude oil from international markets.

“The recent run-up in oil prices is an emerging concern. But, no alarms yet,” the government said in its report.

India’s economic outlook for the fiscal year 2023-24 remains “bright” after better September monsoon rains, the government added.

India is forecast to receive heavy monsoon rains at the tail end of the four-month season after the driest August in more than a century hit some summer crops.

Prices of some key food items that drove the inflation rate above seven per cent in July are easing, the government said in its report.

“With vegetable prices correcting and government and monetary measures in place, inflation is expected to trend downward in the coming months,” the government said.

India’s retail inflation (INCPIY=ECI) eased in August as food prices moderated, but held above the upper end of the Reserve Bank of India’s two to six per cent target for a second month.

However, the RBI was not expected to hike its key policy rate anytime soon and instead start cutting in the second quarter of 2024.

Food prices have been a key concern for policymakers since last year as erratic weather conditions have hurt the output of vegetables, milk and cereals.

India’s baseline estimate for economic growth is 6.5 per cent, the government added.

manufacturing

Core Sector Output Witness 7.9% Surge In Sep

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In the last year during September, the growth rate stood at 5.4 per cent. Prior to that, it recorded 4.1 per cent in August. In June when the output expanded by 13.1 per cent, made it the previous high

The production of eight infrastructure sectors has witnessed a surge by 7.9 per cent during September, keeping it the highest during last three months. This has resulted due to better performance by coal, fertiliser, cement and electricity segments, as per the official data released on 31 October. 

In the last year during September, the growth rate stood at 5.4 per cent. Prior to that, it recorded 4.1 per cent in August. In June when the output expanded by 13.1 per cent, made it the previous high. The growth in the production of eight infrastructure sectors viz. coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity was recorded at 9.6 per cent in April-September this year as against to 16.9 per cent a year ago.

The output of coal, fertiliser, cement and electricity during September went up by 12 per cent, 11.8 per cent, 12.1 per cent and 11 per cent, respectively. At the same time, the refinery products’ output surged by 6.6 per cent as against 6 per cent in the same month last year. Whereas, crude oil and natural gas production squeezed by 2.3 per cent and 1.7 per cent, respectively, during the month under review. 

The commerce and industry, Minister Piyush Goyal through a tweet said, ” A reason why India is being called a global bright spot is the strength of its core industries. Output of 8 core industries in September grew 7.9 per cent.” 

Investment Information and Credit Rating Agency of India Limited (ICRA), Chief Economist Aditi Nayar commenting on the data said that the core sector growth rebounded to a robust 7.9 per cent in September, after considering two months of moderation.

With this growth it may be expected that the IIP (index of industrial production) may revert to a modest 4-6 per cent YoY (year on year) rise in that month, from the unpredicted contraction in August 2022. Most probably, the IIP data for September is expected to be outr in the second week of November by the government. The contribution of eight core industries accounts to 40.27 per cent in the IIP.

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Russian Oil Imports To India Rise By 18.5%

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On the Russia-Ukraine crisis, western countries are continuously pressurising not to do business with Russia, but India is continuously increasing its purchase of oil from Russia

According to energy cargo tracker Vortex, Russian oil imports into India in September rose by 18.5 per cent after falling for two months from August. Due to this it has become the second largest supplier of crude oil to the country after Saudi Arabia.

On the Russia-Ukraine crisis, western countries are continuously pressurising not to do business with Russia, but India is continuously increasing its purchase of oil from Russia. In the past, western countries had said that it was because of India and China that the sanctions have not affected Russia.

Figures show that Russian oil imports at 879,000 barrels per day (bpd) in September are the second highest in a month for India after June’s 933,000 bpd. According to the Economic Times report, India may consider importing more Russian crude this quarter, as refiners accelerate to meet the seasonal increase in domestic demand and higher export demand from Europe.

Before the start of the Ukraine war Russian oil comprised about 1 per cent of India’s imports as freight traffic made it uncompetitive, but has now climbed to 21 per cent. Indian refiners’ attraction to Russian crude increased after the start of the Ukraine War. This is because traders offered higher discounts, which have come to around USD 5-6 per barrel on a delivery basis.

Rising Russian imports mean a loss of market share for other major exporters such as the US, Iraq and the United Arab Emirates. According to the report, in September, Saudi Arabia was the top supplier to India while Iraq and the United Arab Emirates were ranked third and fourth respectively. 

The US, the fifth largest supplier, now accounts for about 4 per cent of the Indian market, down from 10 per cent a year ago. India has also increased purchases of Russian products, with fuel oil imports approaching 100,000 barrels per day in September, up from an average of about 60,000 bpd in the first quarter of 2022. The country has also received its first 90,000 tonne of Russian.

Chinese imports of marine Russian crude rose 7 per cent month-on-month to 1 million barrels per day, while European imports rose 16 per cent to 950,000 bpd. Maritime Russian crude oil imports to Europe have halved since the beginning of the year. China and Europe import a large amount of Russian crude oil through pipelines. Russia’s share in the Indian crude oil market may increase further if the European Union keeps its promise to ban imports of Russian crude oil from December.

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RBI Sells Dollars As Rising Oil Prices Push Rupee To Near Record Low

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The rupee was last trading at 81.90, down from 81.34 in the previous session

The Indian central bank likely sold dollars via state-run banks on Monday as rising oil prices and weak risk appetite pushed the rupee to within striking distance of record lows.

The rupee was last trading at 81.90, down from 81.34 in the previous session. The local unit reached a record low of 81.95 last Wednesday.

The intervention by the Reserve Bank of India was confirmed to Reuters by two bankers and two brokerage firms.

(Reuters)

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Oil Rises On Weakening Dollar

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The International Energy Agency (IEA) said Wednesday it expects widespread switching from gas to oil for heating purposes, saying it will average 700,000 barrels per day (bpd) in October 2022 to March 2023 – double the level of a year ago

Oil prices edged upwards in early Asian trade on Thursday, as supply concerns and a looming rail stoppage in the United States, the world’s biggest crude consumer, supported markets. Brent crude futures rose 38 cents, or 0.4 per cent, to USD 94.48 a barrel by 0013 GMT, while US West Texas Intermediate crude rose 46 cents, or 0.5 per cent, to USD 88.94.

The dollar index slipped 0.14 per cent on Wednesday, dialing back the previous session’s gains, lifting demand for dollar-denominated commodities such as crude oil from holders of other currencies. The International Energy Agency (IEA) said Wednesday it expects widespread switching from gas to oil for heating purposes, saying it will average 700,000 barrels per day (bpd) in October 2022 to March 2023 – double the level of a year ago. That, along with overall expectations for weak supply growth, also helped boost the market.

The increasing likelihood of a US rail stoppage due to an ongoing labor dispute is also adding support to the market. Three unions are negotiating for a new contract that could affect rail shipments, which are important for crude and product deliveries. TotalEnergies SE cut production at its 238,000 barrel-per-day (bpd) Port Arthur, Texas, refinery because of the planned shutdown of two sulfur recovery units (SRUs) on Wednesday, said sources familiar with plant operations. 

(Reuters)

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Russia Threatens To Stop Selling Oil To Those Setting Price Caps

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Group of Seven (G7) finance ministers were due to meet virtually on Friday and were expected to firm up plans to impose a price cap on Russian oil purchases with the aim of reducing the revenues flowing to Moscow

The Kremlin said on Friday that Russia would stop selling oil to countries that impose price caps on Russia’s energy resources – caps that Moscow said would lead to significant destabilisation of the global oil market. “Companies that impose a price cap will not be among the recipients of Russian oil,” Kremlin spokesman Dmitry Peskov told reporters in a conference call, endorsing comments made on Thursday by Deputy Prime Minister Alexander Novak.

“We simply will not cooperate with them on non-market principles,” Peskov said. Group of Seven (G7) finance ministers were due to meet virtually on Friday and were expected to firm up plans to impose a price cap on Russian oil purchases with the aim of reducing the revenues flowing to Moscow.

The European Union earlier this year imposed a partial ban on Russian oil purchases, which Brussels says will halt 90% of Russia’s exports to the 27-member bloc when it fully comes into force. European Commission head Ursula von der Leyen said on Friday it was time for the EU to consider a similar price cap on Russian gas purchases.

Peskov said it was European citizens who were paying the price for such moves, imposed in response to Moscow’s military campaign in Ukraine. “Energy markets are at fever pitch. This is mainly in Europe, where anti-Russian measures have led to a situation where Europe is buying liquefied natural gas (LNG) from the United States for a lot of money – unjustified money. U.S. companies are getting richer and European taxpayers are getting poorer,” Peskov said.

Russia was studying how a price ceiling on its oil exports might affect its economy, Peskov said. “One thing can be said with confidence: such a move will lead to a significant destabilisation of the oil markets.” Before Russia sent tens of thousands of troops into Ukraine in February, Europe was the destination for almost half of Russia’s crude and petroleum product exports, according to the International Energy Agency. The bloc imported 2.2 million barrels per day (bpd) of crude, 1.2 million bpd of refined products and 0.5m bpd of diesel in 2021, with Germany, Poland and the Netherlands the largest customers. 

(Reuters)

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Oil Tumbles On Inflation Woes, Iraq Exports

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The market awaits the upcoming meeting of the Organization of the Petroleum Exporting Countries and allies such as Russia, known as OPEC+, on Sept. 5

Oil prices fell Tuesday on fears that an inflation-induced weakening of global economies would soften fuel demand, and as Iraqi crude exports have been unaffected by clashes.

Brent crude futures for October settlement fell $2.45, or 2.33 per cent, to $102.64 a barrel by 1022 GMT, after climbing 4.1 per cent on Monday, the biggest increase in more than a month.

The October contract expires on Wednesday and the more active November contract was at $101.12 a barrel, down 1.76 per cent.

US West Texas Intermediate crude was at $95.46 a barrel, down $1.55, or 1.6 per cent, following a 4.2 per cent rise in the previous session.

Inflation is near double-digit territory in many of the world’s biggest economies, a level not seen in close to a half century. This could prompt central banks in the United States and Europe to resort to more aggressive interest rate hikes that could curtail economic growth and weigh on fuel demand. 

“The economy will continue to remain slow with the Fed’s aggressive monetary policies. Investors are now waiting for the monthly employment data on Friday,” said Kunal Sawhney, chief executive officer, Kalkine Group.

Prices took a tumble after comments from Iraq’s state-owned marketer SOMO that the country’s oil exports are unaffected by unrest, UBS analyst Giovanni Staunovo said.

Baghdad seeing its worst fighting for years as clashes between Shi’ite Muslim groups spill into a second day. 

SOMO also said on Tuesday it can redirect more oil to Europe if required. 

The market awaits the upcoming meeting of the Organization of the Petroleum Exporting Countries and allies such as Russia, known as OPEC+, on Sept. 5.

Saudi Arabia last week raised the possibility of production cuts from OPEC+, which sources said could coincide with a boost in supply from Iran should it clinch a nuclear deal with the West.

“Possible reduction in OPEC+ production is the reason why the oil market has thumbed its nose at weakening equities and the strong dollar,” said Tamas Varga of oil broker PVM.

Meanwhile, the American Petroleum Institute, an industry group, is due to release data on US crude inventories at 4:30 p.m. EDT (2030 GMT) on Tuesday.

US crude oil stockpiles likely fell 600,000 barrels in the week to Aug. 26, with distillates and gasoline inventories also seen down, a preliminary Reuters poll showed on Monday.

(Reuters)

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Oil Prices Sink $2/Bbl

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Talks between the European Union, the United States and Iran to revive the 2015 nuclear deal are continuing, with Iran saying it had received a response from the United States to the EU’s “final” text to resurrect the agreement

Oil prices slumped by about $2 a barrel on Thursday in volatile trade as investors braced for the possible return to global markets of sanctioned Iranian oil exports and on worries that rising US interest rates would weaken fuel demand.

Brent crude settled at $99.34 a barrel, shedding $1.88, or 1.9 per cent. US West Texas Intermediate crude settled at $92.52 a barrel, losing $2.37, or 2.5 per cent.

Talks between the European Union, the United States and Iran to revive the 2015 nuclear deal are continuing, with Iran saying it had received a response from the United States to the EU’s “final” text to resurrect the agreement.

“Nobody wants to jump in here and commit to a size position when you can get ambushed by an Iranian headline at any given moment,” said Bob Yawger, director of energy futures at Mizuho, citing thin trading volumes during the session.

Investors also were waiting for scheduled remarks on Friday by US Federal Reserve Chair Jerome Powell at the Kansas City Fed’s Economic Policy Symposium in Jackson Hole, Wyoming. 

“The (market) is a little bit concerned about what Jerome Powell is going to say tomorrow about rising interest rates,” said Phil Flynn, an analyst at Price Futures group in Chicago.

Powell is expected to summarize where the Fed stands in its fight to control inflation, including information about its rate-path hike in the long and short-term.

Softening US gasoline demand raised concerns about slowing economic activity and pushed prices lower.

Overall US demand for gasoline sunk in the most recent period last week, leaving the four-week average of daily gasoline product supplied 7 per cent below the year-earlier period, according to the latest data released by the Energy Information Administration.

Limiting the downside for oil prices earlier in the session were comments on Monday by Saudi Energy Minister Prince Abdulaziz bin Salman that helped push prices to three-week highs, when he flagged the possibility that OPEC+ could cut production.

“It may (make) the chance of a move back below $90 in the near-term hard to come by unless a nuclear deal is agreed upon and OPEC+’s appetite for cuts put to the test,” Oanda analyst Craig Erlam said.

(Reuters)

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Oil Up 3% On Robust US Fuel Consumption

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Prices rose more than 1 per cent during the previous session, although brent at one point fell to its lowest since February, as signs of a slowdown mounted in some places

Oil prices gained about 3 per cent on Thursday as positive US economic data and robust US fuel consumption offset concerns that slowing economic growth in other countries could undercut demand.

Brent futures rose $2.94, or 3.1 per cent, to settle at $96.59 a barrel, while US West Texas Intermediate (WTI) crude rose $2.39, or 2.7 per cent, to settle at $90.50.

Prices rose more than 1 per cent during the previous session, although Brent at one point fell to its lowest since February, as signs of a slowdown mounted in some places.

“Oil prices rallied after another round of impressive US economic data boosted optimism for an improving crude demand outlook,” said Edward Moya, senior market analyst at data and analytics firm OANDA. Moya also noted that OPEC will not allow the recent pullback in oil prices to continue much further.

The number of Americans filing new claims for unemployment benefits fell last week and the prior period’s data was revised sharply lower, suggesting labor market conditions remain tight despite slower momentum due to higher interest rates. 

The new secretary general of the Organization of the Petroleum Exporting Countries (OPEC), Haitham Al Ghais, told Reuters that policymakers, lawmakers and insufficient oil and gas sector investments are to blame for high energy prices, not the cartel. 

At its next meeting in September, Al Ghais said OPEC+, which includes other oil suppliers like Russia, “could cut production if necessary, we could add production if necessary. … It all depends on how things unfold.” 

US crude stocks  fell by 7.1 million barrels in the week to Aug. 12, Energy Information Administration data showed, against expectations for a 275,000-barrel drop, as exports hit a record 5 million barrels per day (bpd).

Bans by the European Union on Russian oil exports could dramatically tighten supply and drive up prices in coming months.

“The EU embargoes will force Russia to shut in around 1.6 million (bpd) of output by year-end, rising to 2 million bpd in 2023,” consultancy BCA research said in a note.

Russia, however, forecasts rising output and exports until the end of 2025, an economy ministry document seen by Reuters showed, saying revenue from energy exports will rise 38 per cent this year, partly due to higher oil export volumes.

More Cautious

Oil prices rose despite the possibility of increased supplies from Iran and worries that demand could drop if China imposes more lockdowns to stop the spread of COVID, along with slowing economic growth as central banks raise interest rates to control runaway inflation. 

The market is awaiting developments from talks to revive Iran’s 2015 nuclear deal with world powers, which could lead to a roughly 1 million bpd boost in Iranian oil exports.

Open interest in US futures fell on Wednesday to the lowest since January 2015 as investors cut back on risky assets like commodities, worried central banks will keep raising rates.

A stronger dollar reduces demand for oil by making the fuel more expensive for buyers using other currencies. 

(Reuters)

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Indian Govt Working With Cenbank To Control Inflation

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Inflationary pressure has not eased yet but should do as prices of crude oil and food items like edible oil fall

India’s federal government is working with its central bank to take measures and control inflation, a top government source said on Thursday.

Inflationary pressure has not eased yet but should do as prices of crude oil and food items like edible oil fall, said the source, who did not want to be named.

India’s retail inflation likely eased in July to 6.78% year-on-year, helped by a fall in prices of food and fuel, according to a Reuters poll of economists. 

(Reuters)

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