Weekly petroleum inventories:
- Prior was -4982K
- Gasoline -724K vs +150K expected
- Distillates +5495K vs +2500K expected
- Cushing -3395K vs -5587K prior
- Crude +8731K
- Cushing -3370K
- Gasoline +1120K
- Distillates +6907K
The lockdown has severely hurt the petroleum sector, with oil and gas as well as refining suffering a sharp decline in production.
Gas output in April fell 18.6 per cent to 2.16 billion cubic metres (bcm) against 2.65bcm a year ago, according to the oil ministry.The country’s top gas producer ONGC reported a 15.3 per cent drop in output at 1.72bcm.
“The shortfall in gas production (by ONGC) is primarily due to less gas offtake by consumers,” the ministry said.
State-owned Oil India Ltd also produced 10 per cent less natural gas at 202.05 million cubic metres because of the presence of carbon dioxide at one of its fields in Assam and less purchases by consumers because of the lockdown.
Crude oil production fell 6.35 per cent to 2.5 million tonnes (mt) in April.Production at ONGC was marginally lower at 1.7 mt, while private player Cairn produced 19.2 per cent less at 615,800 tonnes.
ONGC had to shut down some of its wells on the western coast because of lower demand from GAIL and the restriction of movement of its staff.
Refineries produced about 30 per cent less fuel in April at 18.9mt as the lockdown kept most vehicles off the roads.
“Reasons for the shortfall in production mainly include low demand due to Covid-19 lockdown,” the ministry said.
Petroleum product demand is expected to fall eight per cent to 4,597 thousand barrels per day in 2020, the International Energy Agency (IEA) said as part of its May oil market report.
Demand is projected to fall 350 thousand barrels per day in the second quarter of 2020, primarily because of mobility restrictions.
The IEA has projected demand to fall 60 per cent year-on-year in April and May.Diesel demand is projected to contract 690 thousand barrels per day in the second quarter of 2020, while demand for aviation turbine fuel (ATF) and kerosene is projected to fall almost 40 per cent in April-May.
Roughly half of the kerosene produced is used as jet fuel and will be severely impacted by airline restrictions, the IEA said.
Overall, India’s oil demand is expected to fall 4.60 million barrels per day in 2020 compared with 5.01 million barrels per day in 2019.
The agency expects domestic crude oil production to continue to decline in 2020.
Indias gold demand was 9 per cent lower in 2019, at 690 tonne, primarily owing to the sharp surge in prices, however, it is expected to rebound in 2020, the World Gold Council (WGC) said on Thursday.
The council said India’s gold demand will be in the range of 700-800 tonnes in 2020 from 690 tonnes in 2019.
“Looking ahead, 2020 we expect policy-led and industry-led initiatives to bring a marked shift in making the industry more transparent and organised,” said Somasundaram PR, Managing Director, India, World Gold Council.
He added that the government has already made hallmarking mandatory on January 15, 2020 with a transition period of one year for the trade to sell or change its existing non hallmarked inventory.
“This is an overdue reform and a positive step towards making the Indian gold more trustworthy. These and other changes to follow are significantly positive for the long-term sustainability of demand, especially for the compliant and the organised,” Somasundaram added.
However, the report said that short-term challenges remain as large sections of the industry compete on low margins and fear tax uncertainty, leaving little incentive for long term investments and modern trade practices.
Globally, WGC said that Gold demand fell 1 per cent in 2019 as a huge rise in investment flows into ETFs and similar products was matched by the price-driven slump in consumer demand.
Besides, the central bank net purchases in 2019 were remarkable the report said. The annual total of 650.3 tonne is the second highest level of annual purchases for 50 years.
In total, 15 central banks increased their gold reserves by at least one tonne in 2019.
Demand was exclusive to emerging market central banks looking to bolster and diversify their overall reserve, WGC said.
(Green – US 10-year inflation expectations, white – copper/.gold ratio)
(White – excess reserves, yellow – Fed’s balance sheet, purple – USD index)
MUFG Research discusses USD/JPY outlook and targets the pair at 107, 106, 105, 104 in Q1, Q2, Q3, and Q4 respectively.
“The intra-day high-to-low trading range for USD/JPY in 2019 was 7.6% – that’s the narrowest trading range since 1976 according to Bloomberg data. Taking the last three years the trading range has been just 13.5% underlining the remarkable stability of USD/JPY. 3mth ATM implied volatility fell to 4.99% in December, a record low underlining the conditions conducive to carry. These conditions helped keep the yen weak but failed to trigger any notable sell-off of the yen,” MUFG notes.
“In our view that is a reflection of underlying positives for the yen that will contribute to yen strength this year, even if financial market conditions remain relatively benign…We see limited upside for USD/JPY from current levels. The factors above will act to limit yen weakness. We do not assume any major risk-off event this year but the assassination of Qassem Soleimani in Baghdad on 3rd January is a clear near-term upside risk for the yen that has emerged as 2020 commences,” MUFG adds.