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Cooking oil prices cool off ahead of festive season

Cooking oil prices in India have started cooling from the previous month’s highs, in part due to the reduction in import duty on edible oils and the Centre’s directive to the states to maintain stocks and prevent hoarding of the essential kitchen commodity.

The wholesale price of soyabean

oil

has dropped to Rs 129 per litre from Rs 142 a month ago, while that of palm oil has come down to Rs 121 from Rs 130. Sunflower oil now costs Rs 138 per litre, down from Rs 147. But mustard oil prices are expected to rule firm until the new mustard crop comes in in February-March, industry executives told ET, adding that a sudden spike in prices of edible oils in the upcoming festival season is unlikely.

“Prices of imported oils have corrected in the range of 5 per cent to 9 per cent in the last one month due to reduction in import duty. The recent diktat from the Centre to the state governments will keep the prices stable during the upcoming festive season. Prices have started cooling off and we do not see a sudden spike in prices,” said Sandeep Bajoria, chief executive of Sunvin Group, a vegetable oil broker. “The kharif oilseeds have started arriving to the market, which too will keep a check on soyabean oil prices.”

On October 12, the Uttar Pradesh government issued a stock limit order, which will is expected to considerably bring down the prices of edible oils. Other states like Rajasthan, Gujarat and Haryana may impose stock limits soon, trade sources said.

The Centre on Monday asked the states to speed up the process of issuing stock limit notifications for edible oils in view of the upcoming festival season, which starts on November 4 with Diwali.

To provide near-term relief to consumers, the government has reduced import duty on crude edible oils—first in September and then again in October this year—helping bring down to zero. This will be in effect till March 2022.

“However, the government’s move may not provide much relief to the consumers, as the reduction in import duty by India has been offset by a rise in global prices of crude edible oil,” said BV Mehta, executive director of the Solvent Extractors Association of India. “Malaysian palm oil prices have shot up significantly, which is impacting our prices too, as we depend on imported oils.”

India Ratings & Research (Ind-Ra) has indicated that the imports of edible oils could touch 13.15 million tonnes for the November 2020–October 2021 period, and edible oil inflation will remain elevated in the near term.

PM invites global CEOs to explore oil, gas in India

Prime Minister Narendra Modi on Wednesday rolled out the red carpet for global

oil

and gas giants and invited them to come and explore for oil and natural gas in India ‎as he detailed the reforms taken by his government in the sector. In his annual interaction with CEOs and experts of global oil and gas sector, he said the aim is to make India ‘aatmanirbhar’ or self-reliant in the oil and gas sector.

Industry leaders praised the steps taken by the government towards improving energy access, energy affordability and energy security‎. According to an official statement, the Prime Minister discussed in detail the reforms undertaken in the oil and gas sector in the last seven years, including the ones in exploration and licensing policy, gas marketing, policies on coal bed methane, coal gasification, and the recent reform in Indian Gas Exchange. Such reforms will continue with the goal to make India ‘aatmanirbhar’ in the oil and gas sector, he added. Talking about exploration and production, Modi said the focus has shifted from ‘revenue’ to ‘production’ maximisation.

The Prime Minister also spoke about the need to enhance storage facilities for crude oil. Talking about the rapidly growing natural gas demand in the country, he said outlined the current and potential gas infrastructure development, including pipelines, city gas distribution and LNG regasification terminals. He recounted that since 2016, the suggestions provided in these meetings have been immensely useful in understanding the challenges faced by the oil and gas sector.

He further said India is a land of openness, optimism and opportunities and is brimming with new ideas, perspectives and innovation. ”He invited the CEOs and experts to partner with India in exploration and development of the oil and gas sector in India,” the statement said. ‎ The interaction was attended by industry leaders from across the world, including Rosneft CEO Igor Sechin, Saudi Aramco CEO Amin Nasser, BP CEO Bernard Looney, Reliance Industies head Mukesh Ambani and Vedanta boss Anil Agarwal.

”They said that India is adapting fast to newer forms of clean energy technology, and can play a significant role in shaping global energy supply chains. ”They talked about ensuring sustainable and equitable energy transition, and also gave their inputs and suggestions about further promotion of clean growth and sustainability,” it added.

Oil rises on expectation high natural gas to drive switch for heating

TOKYO:

Oil

prices rose on Thursday, reversing previous losses, on expectations that high natural gas prices as winter approaches may drive a switch to oil to meet heating demand needs.

Brent crude futures gained 28 cents, or 0.3%, to $83.46 a barrel at 0107 GMT after falling 0.3% on Wednesday.

U.S. West Texas Intermediate (WTI) crude futures climbed 22 cents, or 0.3%, to $80.66 a barrel, after dropping 0.3% the previous day.

“Investors bet that surging gas prices will encourage power generators to switch to oil as winter demand season is approaching,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

Prices were also supported by concerns about supply tightness after the U.S. Energy Information Administration (EIA) said on Wednesday that crude oil output in the United States, the world’s biggest producer, is going to decline in 2021 more than previously forecast thought it will bounce back in 2022.

“The current tightness in the crude market and near-term outlook for seasonal demand increases lent support to investors’ sentiment, outweighing a bigger-than-expected build in the U.S. crude inventories and weaker demand forecast by OPEC,” Kikukawa said.

The American Petroleum Institute (API) said late on Wednesday that U.S. crude stockpiles rose by 5.2 million barrels for the week ended Oct. 8, according to market sources who saw the API data.

The API also reported gasoline inventories fell by 4.6 million barrels and distillate stocks fell by 2.7 million barrels, the sources said.[API/S]

Analysts in a Reuters poll expected crude inventories to rise by 700,000 barrels.[EIA/S]

The Organization of the Petroleum Exporting Countries (OPEC) trimmed its world oil demand growth forecast for 2021 in its latest monthly report on Wednesday, while maintaining its 2022 view.

However, the producer group said rising natural gas prices could boost demand for oil products as end users switch fuels.

The EIA will release its inventory report later on Thursday at 11 a.m. EDT (1500 GMT).

Brent falls to two-week low after inventory shock

TOKYO:

Oil

prices fell on Wednesday for a second straight day, with Brent hitting its lowest in two weeks after official figures showed a surprise jump in U.S. inventories of crude.

Brent crude dropped $1.36, or 1.6%, to $83.22 a barrel by 0130 GMT, a two-week low, having declined by 2.1% in the previous session.

U.S. oil fell $1.28, or 1.6%, to $81.38 a barrel, a one-week low, after dropping 2.4% on Wednesday.

Crude stocks rose by 4.3 million barrels last week, the U.S. Energy Department said, more than double the 1.9 million-barrel gain forecast by analysts.

The “hefty” stock build came “on the back of a large jump in net imports of crude oil and still sluggish refinery processing,” Citi Research commodities analysts said in a note.

Still, gasoline stocks fell by 2 million barrels to the lowest in nearly four years, even as U.S. consumers struggle with rising prices to fill their tanks. [EIA/S]

At the WTI delivery hub in Cushing, Oklahoma, crude storage is the most depleted in three years, with prices for longer-dated futures contracts indicating supplies will stay low for months.

Benchmark bond yield up with oil, US yields

Mumbai: North Block’s circumspect borrowing target for the second half of this fiscal failed to lift Indian bonds on Tuesday amid a palpable global threat of higher fuel prices, and signals from the central bank on baby steps to normalisation of liquidity potentially lifting overall rates marginally.

The central bank raised the cut-off for bids in the 7-day Variable Reverse Repo, seen as a tool to lift rates from abysmally low levels to normal, at 3.99%, closer to policy repo rate of 4%. Reverse repo rate is the rate of interest the RBI pays banks for keeping excess funds with it, and repo rate is the rate banks pay to borrow from the RBI. The cut-off was 3.6% on September 24 in the 14-day VRR.

Bond yields either rose marginally or fell only a tad instead of an anticipated sharp drop after the Reserve Bank of India (RBI) late Monday published the borrowing calendar that showed North Block may borrow less than what the markets pencilled in.

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bond

The benchmark bond yield was up two basis points to 6.23% Tuesday. The gauge was widely expected to fall by five basis points at least after the publication of the borrowing schedule. When bond yields rise prices fall.

“Local debt markets are tracking the recent rise in crude

oil

prices and US treasury yields,” said Nagaraj Kulkarni, executive director and senior Asia rates strategist at Standard Chartered Bank, Singapore. “These are new headwinds to the local bond market, which otherwise has reacted positively. The RBI will remain vigilant and would not desire a rise in bond yields.”

Global crude oil prices crossed $80 a barrel for the first time in three years amid signs of widespread fuel shortfalls. Investment bank Goldman Sachs expects Brent to hit $90 a barrel by the year end.

Five-year bonds bearing a coupon of 5.63% yielded a tad lower at 5.67% Tuesday. These are the second most traded liquid government debt securities.

Yields were expected to drop 10 basis points in this category.

Other sets of sovereign papers maturing in 2035 yielded a tad higher. Those securities, ranked in the top five liquid list, were also expected to fall.

New Delhi will borrow Rs 5.03 lakh crore between October and March, in line with budget estimates.

Brent crude oil price may hit $110 in 2022: Goldman Sachs

(This story originally appeared in on Oct 27, 2021)

Mumbai: Global financial major Goldman Sachs expects Brent crude

oil

prices to reach $110-per-barrel by next year, a 30% jump from the current levels of $85/bbl. Oil analysts at Goldman Sachs say that the global demand-supply mismatch, with the current demand almost near the pre-Covid levels, is expected to push up crude prices over the next year.

A commensurate 30% rise in petro product prices in India would mean petrol prices could be near the Rs 150-per-litre mark and diesel Rs 140/ltr. On Tuesday, the price of petrol in the city was Rs 113.4/ltr while diesel was at Rs 104.4/ltr.

“We estimate that global oil demand has surpassed 99 million barrels per day (mb/d) and will shortly hit its pre-Covid level of 100 mb/d as Asia rebounds after the Delta wave,” Goldman Sachs analysts said in a recent note. “In addition, we estimate that gas-to-oil switching may be contributing at least 1 mb/d to oil demand, with current gas forwards incentivising this through winter. While not our base-case, such persistence would pose upside risk to our $90/bbl year-end Brent price forecast.”

Analysts at Goldman Sachs said that oil price was not high enough to generate demand destruction given falling energy intensity in developed markets and rising income levels in emerging markets. “Specifically, we estimate that the 2022 Brent price would need to reach $110/bbl to balance the deficit we expect through Q1 2022 via the demand side alone.”

Commodity strategies: Gold, silver, crude, base metals

By Tapan Patel

Here is a look at how different commodities are behaving in today’s market.

Outlook: Bullion
Bullion prices traded up on Monday with spot gold prices at COMEX up 0.44% near $1800 per ounce while spot silver prices at COMEX rose 0.90% to $24.53 per ounce in the morning trade. Gold prices were supported by a fall in US bond yields as 10-year US Treasury yields dropped to 1.64% on Monday. Global inflation worries and renewed COVID related restrictions in Russia and some parts of Europe may add risk premiums in the prices. Silver prices were outperforming gold on higher demand for industrial metals. Bullion prices may trade sideways to up for the day.

Trading Strategy:
MCX Gold December resistance for the day lies at Rs. 48200 per 10 grams with support at Rs. 47700 per 10 grams. MCX Silver December support lies at Rs. 63800 per KG, resistance at Rs. 67800 per KG.

Outlook: Crude

Oil


Crude oil prices traded higher on Monday with benchmark NYMEX WTI crude oil prices up by 1% at $84.61 per barrel in the morning trade. Crude oil prices traded near seven-year high on supply tightness and higher demand outlook. The prices rose with a rally in gas and coal prices resulting in fuel-switching for power. We expect crude oil prices to trade sideways to down for the day. The CFTC data showed that money managers increased their net long positions by 20231 lots last week.

Trading Strategy:
MCX Crude Oil November support lies at Rs. 6270 per barrel with resistance at Rs. 6450 per barrel.

Outlook: Base Metals
Base metals prices traded higher with most metals reporting a positive opening. Base metals traded up on higher demand and lower supply worries, with Aluminum, Zinc and Nickel gaining the most in the morning trade. Base metals got a boost with a rise in gas and coal prices while supply concerns from Peru supported copper prices. The Chinese government has ensured to ease a power shortage in the coming months. Base metals may trade sideways to up for the day.

Trading Strategy:
MCX Copper November support lies at Rs. 765 and resistance at Rs. 778. MCX Zinc November support lies at Rs. 282, resistance at Rs. 295. MCX Aluminium November support lies at Rs. 232 with resistance at Rs. 243.

Disclaimer: Tapan Patel- Senior Analyst (Commodities), HDFC securities. Views expressed are personal.

Government notifies incentives to oil PSUs in pre-NELP blocks

The government has notified a new policy requiring state-owned

Oil

and Natural Gas Corp Ltd (

ONGC

) and Oil India Ltd (OIL) to pay royalty and cess tax only to the extent of their equity holding in certain pre-1999 oil and gas fields.

The ‘Policy Framework for Streamlining the Working of Production Sharing Contracts in respect of Pre-NELP and NELP Blocks’ was notified in the Gazette of India yesterday, according to the Gazette notification.

Till now ONGC and OIL had to pay 100 per cent royalty and cess tax on 11 pre-New Exploration Licensing Policy (NELP) fields that were given to private firms prior to 1999.

The government had awarded some discovered oil and gas fields to private firms in the 1990s with a view to attracting investments in the country.

To incentivise such investments, the liability of payment of statutory levies like royalty and cess was put on state-owned firms, who were made licensees of the blocks. ONGC and Oil India Ltd were allowed right to back in or take an interest of 30-40 per cent in the fields, but were liable to pay 100 per cent of the statutory levies.

The new rule, which last month approved by the Cabinet, will apply to 11 fields like Dholka field in Gujarat that is operated by Joshi Oil and Gas. It will also apply to Hindustan Oil Exploration Company (HOEC)-operated PY-1 field in Cauvery basin.

“In pre-NELP exploration blocks, the National Oil Companies, as Licensee are liable for payment of royalty, cess and other statutory charges on entire production of oil and gas.

“To facilitate further investments, the Government has decided that the contractors in pre-NELP exploration blocks will be allowed to share the liability of the statutory levies including royalty, cess and any other charges in proportion to their respective participating interests (PIs) in the block,” the notification said.

All the constituents of the blocks would become licensees and payments made towards such statutory levies shall be eligible for cost recovery. It means that like capital and operating expense, the statutory levies can now be first recovered from the sale of hydrocarbons before sharing the profits with the government.

These are the same conditions that ONGC had insisted upon in 2010 when Vedanta bought Cairn Energy plc’s 70 per cent stake in the prolific Barmer basin oil block in Rajasthan. ONGC, which held 30 per cent stake in the block, gave approval to the deal only when Vedanta agreed to pay royalty and cess on its 70 per cent share.

Royalty for onland block is presently 20 per cent. An equivalent amount of cess is also levied.

Also, the notification extended the time period given to oil and gas companies to develop hydrocarbon blocks in the northeast. Production from these blocks will be linked to market prices of natural gas.

It also extended tax benefits under Section 42 of Income Tax, 1961 prospectively to operational blocks under pre-NELP discovered fields for the extended period of the contract.

Section 42 of Income Tax allows the companies to claim 100 per cent of expenditure incurred under a production sharing contract (PSC) as tax deductible for computing taxable income in the same year.

While signing PSC of pre-NELP discovered fields, 13 contracts out of 28 contracts did not have provision for tax benefit under Section 42 of Income-tax Act. Now, this will bring uniformity and consistency in PSCs and provide an incentive to the contractor to make an additional investment during the extended period of PSC, it said.

The approvals given are expected to help in ensuring the expeditious development of hydrocarbon resources.

Government allows companies to explore for oil, gas beyond block boundaries

In a bid to make it easier for explorers to find and produce more oil and gas, the Government has allowed companies to go beyond their allocated block boundaries if a discovery were to extend outside their contracted area.

In a “Policy Framework for Streamlining the Operations, Relaxation of Timelines”, the

Oil

Ministry yesterday delegated powers to head of its upstream regulatory body, DGH to prove excusable delays and excess cost recovery.

It allowed companies to carry out an appraisal of an oil and gas discovery beyond the boundaries of their allocated exploration area on the recommendation of block oversight panel, called the Management Committee.

The firms can take a Petroleum Exploration License (PEL) of area beyond their awarded block boundaries to “ascertain the extent of the commercial discovery” provided “such area is not of strategic importance, or such area has not been awarded to any other company by the government or is not held by any other party or is not on offer by the government” in any bid round, the order said.

The ministry also simplified the process of companies to pay for unfinished committed exploration and drilling work and enter into next phase of production and development quickly.

While presently the companies have to pay the amount equivalent to unfinished work as determined by DGH within 60 days of the expiry of the exploration phase, the ministry has allowed submission of a bank guarantee for any amount that is disputed between them.

On empowering the Director General of Directorate General of Hydrocarbons (DGH), the order said the head of the regulatory body can approve “excusable delays” in exploration phase due to any delays in government approvals and clearances. Earlier, the extra period for excusable delays was given only after approval by the ministry.

DG, DGH can, however, do this only on review and recommendation by a multi-disciplinary committee, it said. “The DGH would properly define excusable delays and prescribe the detailed procedure for allowing excusable delays.”

Presently, the delays are condoned by the government.

The DGH has also been asked to furnish a statement listing out the cases decided with brief facts of each case on a quarterly basis to the ministry.

The order also empowered DG, DGH to approve up to 20 per cent increase in exploration or development cost of a company due to change in circumstances after the award of the block.

“DG, DGH will constitute a multi-disciplinary committee to review and recommend the proposal for final approval of DG, DGH,” the order said.

The ministry order also said operators appoint auditors “not later than six months from the closure of the financial year” instead of the present upper limit of conducting an audit within two years from the end of a financial year.

It halved the timeline for notifying audit exceptions to operators within 60 days from the date of receipt of the audit report and delegated the notifying powers to DGH instead of the ministry.

The unfettered powers to DG, DGH to approve excess cost claims pertains to 164 contracts signed between Round 5 and 9 of the New Exploration Licensing Policy (NELP).

View: Emerging oil realities just showed India the road it must take from here

by Jaideep Mishra

There’s been a flare-up in the politics of automotive

oil

pricing of late. The Bharat Bandh called by opposition parties last Monday was to protest record retail prices of diesel and petrol. But policymakers in charge need to stay the course, for now.

It makes perfect macroeconomic sense to pass on rising global crude oil prices to consumers, and duly revise retail prices of the main petroleum products against the backdrop of a weaker rupee vis-à-vis the strengthening dollar.

True, the structure and quantum of consumption taxes in retail prices of petrol and diesel need reform. Yet, the fact is that overall consumer price inflation remains moderate, and in such a scenario, hardening retail prices of petro-products would actually lead to fiscal prudence and arrest runaway demand for oil.

Note that retail taxes on diesel and petrol now add up to over Rs 5 lakh crore per annum, and the revenue so garnered does help to keep the fiscal deficit as per budgeted levels. It is also a fact that the current account deficit, which denotes revenue imbalance on the external account, has been rising lately, no doubt due to elevated crude oil prices. We are overwhelmingly dependent on crude imports, and any bid to artificially lower retail prices of the main petro-goods would merely fuel oil demand and worsen the current account deficit.

Further, India is now the third-largest importer of crude oil, as the demand for automotive fuels has been going up by leaps and bounds, for years. And, attempting to revise oil prices by fiat in the here and now would have untoward consequences and send wholly wrong price signals.

The Union Cabinet has, meanwhile, taken steps to boost ethanol blending of petrol to make it more price attractive. The policy objective is to proactively step up supply, by mandating that ethanol derived directly from sugarcane be priced higher than that derived as a by-product from molasses.

However, in an increasingly water-stressed economy, aiming to increase acreage of a water-guzzling crop like sugarcane can have only a very limited upside. A more sustainable solution can be modern bio-refineries that use bio-wastes as feedstock.

But a much more promising solution is to produce methanol from high-ash coal, and use it for blending diesel and petrol. The expert view is that methanol burns well in all internal combustion engines, and produces no particulate matter or soot, and is far more environment friendly than other fossil fuels. NITI Aayog has put out policy papers which estimate that methanol from indigenous feedstock can cost as little as Rs 19 per litre, and can be blended up to 15% with petrol and 20% with automotive diesel.

It is averred that methanol can wholly replace diesel in industrial generators, power modules in mobile phone towers — there are 7,50,000 of them nationally — and substitute for cooking gas imports. The way forward is to explore foreign tie-ups and rev up methanol production.

In parallel, there seems much potential to tap solar energy, as a replacement for diesel, to run agricultural water pumps. A solar pump can provide dependable and affordable energy for irrigation, and fast-forwarding its usage would make ample sense.

But, in tandem, what’s required is to have policy in place for speedier diffusion of electric vehicles. The plain fact is that the internal combustion engine is not very energy efficient, and modern e-vehicles promise far more resource productivity. And the way ahead here is to have much sprinkling of solar-powered charging points on the ground, so as to accelerate adoption, usage and environmental benignness of e-vehicles.

The point remains that oil imports have led to outright balance of payment problems for three whole decades up to the uncertain 1990s. The economy is now much more robust, but oil can still jack up the current account deficit. Hence the need for further oil sector reforms.

While passing on higher imported costs of crude is sensible, we nevertheless need to reform the voluminous oil economy. And the road to traverse is to open-up oil marketing to the larger retail industry, as is par for the course in the mature markets. We can well do away with routine ringfencing retail sales of oil products, in effect, solely for oil companies.

The figures suggest that ‘independent retailers’ abroad account for about half the retail oil offtake there.

We also need to reform and modernise oil taxes, so as to put paid to the high-cost and cascading tax-on-tax regime at each stage of output for the main petro-goods, and bring all petro-products under the goods and services tax regime, albeit with limited tax set-offs for oil items, as is the norm globally. The bottomline is that we must widen the indirect tax base and not rely so much on oil revenues.

( Originally published on Sep 13, 2018 )