Stronger Crude Could Drive India’s Natural Gas Higher

While coal reserves help India generate most of its thermal power, natural gas is also used, and could begin to rise if oil prices globally begin to climb.  Natural gas prices that are imported into India, are linked to the price of oil. Oil prices have been stable, as supply has dwarfed demand, but a new technique used by Saudi Arabia, could help buoy the oil market, which could spill over into the natural gas prices, and create upward pressure on power prices.

India has an agreement to import natural gas from Qatar, and although there continues to be issues between many OPEC nations and Qatar, India has been unaffected by the scuffle. Indian officials were initially concern about the tension in the Gulf region on gas supply, an Oil Ministry official said. Petronet LNG, is the largest Indian importer of LNG from Qatar, and has a contract to imports 8.5 million tons of LNG annually from Qatar.

Natural Gas Is Linked to Oil

Natural gas prices are linked to the price of crude oil outside of the United States. Crude oil prices have been under despite OPEC’s 1.8 million barrel per day, self-imposed production cut that is expected to continue until March of 2018.  Depressed prices have generated budget issue for OPEC nations, and Saudi Arabia, has not come up with a plan to help drive prices higher.  By reducing exports to the United States, Saudi Arabia is attacking WTI prices, in an effort to raise the global benchmark.

There recent effort seems to have helped.  According to the most recent report from the U.S. Department of Energy U.S. crude oil imports averaged 7.8 million barrels per day during the past month which is down 1.7% month over month.

Inventories are Declining

The decline in imports lead to a drop-in crude oil stocks, as demand for total products increased. The Energy Information Administration reported that crude oil inventories decreased by 4.7 million barrels from the previous week. Additionally, gasoline inventories decreased by 4.4 million barrels last week, while distillate fuel inventories decreased by 2.1 million barrels last week. The EIA reported that total commercial petroleum inventories decreased by 10.2 million barrels last week. These are the kind of inventory reports Saudi Arabia is hoping to see, which helped buoy crude oil prices.

Demand in aggregate remains robust in the United States, and this is needed if the Saudi plan is expecte3d to work.  Total product demand over the past month averaged about 20.8 million barrels per day, up by 2.1% from the same period last year. Gasoline demand over the past month averaged about 9.7 million barrels per day, down by 0.8%. Distillate fuel demand remains very strong averaging over 4.1 million barrels per day over the past month up by 9.9% from the same period last year. Jet fuel demand is up 5.6% compared to the same month last year.

The large declines in U.S. inventories, could continue to buoy oil prices, which would drag up all of the global oil benchmarks. This would spill over into natural gas prices, and could generate some unwanted price hikes for the India power and gas space. The iFOREX analysis of crude oil shows that prices are breaking out and continue to move higher.

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