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IndiaInternational

Year ahead: Oil markets may remain volatile in 2024 also 

Team Happen Recently
Last updated: 2023/12/25 at 11:39 AM
Team Happen Recently
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 OMCs seen making healthy profits if crude hovers around $85/barrel, and doesn’t flare up 

 The global oil markets in 2023 were impacted by geopolitical tensions, sluggish demand from the world’s top consumers, and a tightening global supply, all of which resulted in high volatility in prices throughout the year. 

  Even as the global players try their best to contain the turbulence now, experts see the oil market striving to strike a balance between global demand and supply in 2024 as well.  

 “Even if such chaotic events (sudden geopolitical tensions) fail to emerge over the next 12 months, volatility will remain high as most energy markets have not yet been able to adapt to previous swings in supply and demand fundamentals to find a new normal,” said Dan Klein, Head of Energy Pathways, S&P Global Commodity Insights.

  With production growth accelerating in the US, analysts now see a blurry picture for supply cuts within the Organisation of Petroleum Exporting Countries and whether it will continue to govern the markets as it has been doing till now.  

 All said and done, if crude prices do bounce back on expectations of demand recovery from China, India’s state-run oil marketing companies (OMCs) might have to incur higher costs on the raw material again, said Gnanasekar Thiagaranjan, Director, Commtrendz Research. 

But  analysts say  this  will  not affect their  long-term profits.During  the first two quarters of the financial year,  OMC was  able to  post  healthy profits compared to the first half of the last  financial year, mainly due to improved marketing margins. 

 The trading margins of the three public sector companies improved last quarter  on the back of  falling  Russian crude  prices, although  OMCs kept  auto fuel  prices  unchanged, helping  them  offset  losses incurred when oil prices were  high than  last year. 

  Analysts now  expect OMC  to  post  healthy  refining and  marketing  profits  in the third and  final  quarters  of  fiscal  2023-24 compared to  corresponding levels last  year, given oil price conditions Crude remains  at  between $85 and $87/barrel.  

  “However,  even with the  announcement  of  further price hikes,  we remain bullish on  upstream and downstream  returns  in this price range for India,” ICICI Securities said.  At the same time,  the current  fall in  crude oil prices  has brought  relief to OMCs.  Its refining  gross  margin  could improve  thanks to  the  wider availability  of  crack  diesel.  

  ICICI Securities stated:  “Recent trends in product spreads imply that gross refining margins will remain in the  range  of $7-8/bbl  (Singapore),  implying  a  $2-3/bbl differential. barrel  for  OMC”. “Along  with  strong retail fuel margins, earnings momentum  is expected to  be  strong  for OMCs  in FY24-25E. 

  Additionally,  the  country’s  gas  industry  is  expected  to  experience  stronger demand  in  2024. 

  “Even  LNG  spot  prices  are moderating, while  there are concerns  about  oil and gas  demand growth  –  supply  costs  to  CGDs (city gas distribution companies)  could will  remain under control,  thereby creating  stronger  gas  demand  in FY24-25E. ”  ICICI Securities said in its report.  

 According to S&P Global, production growth is expected to slow but remain positive in 2024,  further driving increased  LNG and pipeline exports.  

 “Despite low Henry Hub gas prices in 2023, and a pullback in gas-oriented drilling, lower-48 natural gas production will reach 103.4 billion cubic feet per day (Bcf/d) in 2024, up by 4.3 Bcf/d due to strong oil prices stimulating associated gas production.” 

 The consumption of natural gas is also seen rising in the power sector in the next financial year on the back of rising demand for power. 

  “We see a 30-40% rise in demand for gas from the power sector starting from February as the power ministry expects the prices to touch the ceiling of Rs 10 for most time of the day after which it becomes viable for power companies to purchase gas,” said Rajesh Mediratta, MD and CEO of the Indian Gas Exchange.

 Even though it remains to be seen how the global demand and supply fundamentals pan out for the energy markets, a price range of $75-80/ bbl for crude remains ideal to maintain the profitability of Indian OMCs, while for gas companies, the reduction in LNG prices by $1.2–1.3/MMBtu is a material benefit from a pricing competitiveness and margin standpoint, said analysts. 

  “Strong non-OPEC+ supply growth and slowing oil demand growth have led OPEC+ to curtail output and support prices. While this tactic has achieved some success, maintaining discipline among member countries may be difficult in 2024 as the loss of market share continues and non-OPEC+ volumes increase,” said Kurt Barrow, Head of Oil Markets, S&P Global Commodity Insights.  “The  ability to  comply with OPEC+  voluntary production cuts will be  the deciding factor in  crude  oil prices  next year.” 

 For more  information,  visit at https://happenrecently.com/zepto/?amp=1

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