Stop Press: India Getting Rid of Fuel Subsidies!

I must admit that I never once thought this was achievable. Given India’s crazy domestic politics it may yet not happen. However, if local media reports are to be believed, the Indian government has taken the first constructive steps in its history as an independent nation to get rid of petrol subsidies.

The country’s oil secretary Sthanunathan Sundareshan told reporters on Friday, that not only petrol, but diesel and kerosene prices would be freed from the shackles of government price controls. What differentiates the present drive from past murmurings is that for a change the government is willing to provide figures on this occasion.

Apparently by lifting price controls, petrol prices would rise by INR3.5 (£0.05), diesel by INR2.00 and kerosene by INR3.00. Furthermore, government ministers have agreed that the market would henceforth drive the price(s).

Protests, marches, agitations, you name it - have already been planned. Everyone from the Communists to Hindu nationalists are in a strop (real or artificial), according to NDTV, an Indian news broadcaster. The commitment of the government cannot be faulted, but Indian politicians always follow short-term populist agenda where such a move would not sit well, especially as it is a coalition government that is presently running the world’s largest democracy.

Still, the move is long overdue and the need to cut the country’s budget deficit is pressing. India's fiscal deficit is forecast to hit 5.5% of GDP by 2010-11. Whether ridding the nation of fuel subsidies will play a part in cutting it remains to be seen.

© Gaurav Sharma 2010. Photo Courtesy © IndianOil Corporation Ltd.

Yachting, Golfing & Blogging after BP's Oil-spill

As the BP-spill, its containment, aftermath, costs and impact on the industry are scrutinised from all possible angles, side issues which dominate the headlines are about as farcical as they can be. It emerged on June 20 that BP’s egregious CEO Tony Hayward took a break from overlooking the Gulf of Mexico oil spill and committing a series of PR disasters, to spend a day with his teenage son on Father’s day, yachting off the “pristine” (as many American media outlets stress) coast of the UK.

US politicians never loathe showing false anger and lost no time in criticising him, with the charge being led by White House Chief of Staff Rahm Emanuel. However, it then emerged that President Obama, carted off for a few rounds of golf taking the Vice-President along for the ride, that’s after attending a baseball game for good measure. This enabled his opponents to level the same criticism at him and made his Chief of staff look like a jack-ass (as if he needed any help in that department).

Blogger Scott Coen asked why different rules should apply for both men facing criticism for the handling of the ongoing spill? As did UK's Telegraph newspaper. Republican Party Chairman Michael Steele couldn’t agree more putting in his two bits worth. Some were busy revealing how much in political campaign donations had President Obama taken from BP. Turns out he's on top of the pile. Wonder if they will even exchange Christmas cards this year.

Yours truly also felt the need to go beyond his own blog – say a thing or two on BBC reporter Robert Peston and Mark Mardell Blogs. (Click image icons below for text)

As everyone big or small exchanges hot air, tragically the oil spill is far from being plugged amid worries that Tropical storm Alex might hit the spill area this week thereby hampering containment operations.

© Gaurav Sharma 2010. Photo Courtesy © BBC

Russian Production Capped Saudi Output in 2009

Russian production of crude oil overtook that of Saudi Arabia in 2009, thereby making the former the world’s leading oil producer, according to BP’s Statistical Review of World Energy.

Russian crude production rose 1.5% year over year, increasing the country's global oil output share to 12.9%. This compared favourably, for the Russians at least, with Saudi Arabia’s decline in market share to 12% of global output, following an annualised production fall of 10.6%. The difference may be marginal, but it gives the Russians some much needed bragging rights.

Proven oil global reserves rose by 700 million barrels to 1.33 trillion barrels in 2009, the report adds. It also notes that after the global financial crisis, oil consumption dipped 1.7% or 1.2 million barrels per day last year; highest decline since 1982.

It does seem a shade ironic that BP should be bringing this data while the Gulf of Mexico oil spill saga carries on. However, to be fair, they have been publishing this particular data-set for years and are among the most reliable sources of oil industry data.

Following publication of the BP report, the International Energy Agency (IEA) revised its 2010 global oil demand forecast upwards by 60,000 barrels a day to 86.4 million barrels, on the basis of above expectation preliminary economic data from the OECD countries.

The new demand forecast suggests annual demand growth is seen up by 1.7 million barrels or 2% year over year from 2009.

© Gaurav Sharma 2010. Photo Courtesy © Adrian R. Gableson

A Bashed-up BP and a Desperate President

Just how much political capital is worth is one tough question? President Obama is playing a strange and desperate game in his repetitive bashing of BP over the Deepwater Horizon oil spill. A clear strategy seems to be emerging – whenever the President feels the heat, he calculates that a rant (sprinkled with real or staged anger) against BP will help. It makes for good political theatre and to a certain extent it plays out well to an American audience. Having trawled the blogosphere as well as key US news reports, I found very little, if any, mention of Transocean or Halliburton or the fact that it was a rig built, operated and managed by Americans.

Obama can’t bash BP and see all of the pain being felt across the Pond. As many commentators on either side of the Atlantic, including the BBC’s Business Editor Robert Peston, have noted nearly 40% of its shares are held in the US. The financial pain will and perhaps already is being felt in Britain – whether we’re talking pension funds or investment trust ISAs. But the Brit’s wallets, Gulf Coastline Residents and wildlife would not be the only ones to suffer.

Long-term investors are not panicking (yet!) according to my investigations. If anything, from what I hear in the City, many opine now would be a “good time to buy BP shares” on the cheap. One mute point is that crude oil is trading in the circa of US$71 – 77 per barrel in recent weeks. It stood at $74-plus levels the last time I checked. It is not as if crude futures are trading at sub $10 levels, and the US is the only market BP operates in?

I would stress that no one denies the Deepwater Horizon Gulf oil spill is an appalling tragedy in more ways than one. However, drilling in the Gulf is crucial for the energy security of the United States. Obama acknowledged just as much in a speech in March prior to this incident. This morning the International Energy Agency (IEA) opined that a long-term impact on future off-shore supply was unlikely in wake of the incident.

“The longer-lasting impact of Deepwater Horizon on U.S. oil supplies may depend on whether operational negligence on the part of companies or regulators, or rather shortcomings in current operating procedures and regulatory structures, were the key cause. The former might suggest a less profound impact on future oil supply than the latter,” the agency said.

Additionally, the IEA made another interesting comment. It said the US government was now belatedly following the steps taken by the UK after the Piper Alpha disaster (1988) - but noted that scores of new offshore fields were developed in the subsequent demand.

In the interim, what’s influencing markets’ sentiment about BP momentarily is that both the US President and the company’s executives sound desperate given the battering they’ve taken in recent weeks. Neither is helping either which is a real shame.

© Gaurav Sharma 2010. Logo Courtesy © BP Plc

Is Brent Winning Battle of the Indices?

Is London’s Brent Crude winning the battle of the indices? David Peniket, President and Chief Operating Officer of Intercontinental Exchange (ICE) Futures Europe, certainly seems to think so.

Speaking at the Reuters Global World Energy Summit on May 27th, Peniket said, “Brent is the global oil benchmark. Brent is used as the price benchmark for around two-thirds of the world's traded oil. It reflects the fundamentals of the oil market on a global basis and we're seeing Brent used as part of the pricing for oil throughout the world.”

Looking ahead, he added that based on “ongoing” growth in Asia, ICE currently expects Asian market participants to use Brent to hedge their risk rather than other benchmarks.

WTI Volumes traded on the NYMEX are far higher than those of Brent on ICE but Peniket said that from 2008 to 2009 Brent grew by 8% in volume terms while WTI grew 2%. Over Q1 2010, Brent grew by 34% while NYMEX WTI grew by 8%.

He declined comment on when he thought ICE Brent volumes may exceed WTI on NYMEX but said that, “Brent is a seaborne crude; it's at a point of the world where crude oil can move around and it can act as a point of arbitrage between different crude grades. Clearly WTI is an important US benchmark but I don't think it reflects the fundamentals of the global oil market in the way that Brent reflects them.”

Elsewhere in the summit, Reuters reported that top bosses of several leading commodities exchange, including Peniket, expressed their common view that speculation has not caused extreme volatility in oil prices and the efforts by state regulators in various markets are unwise to say the least. That will hardly convince politicians seeking capital and a largely sceptical wider public opinion, most notably in the US.

© Gaurav Sharma 2010. Photo Courtesy © Royal Dutch Shell