EU gas storage at 75% versus 83% last year, tightening supply ahead of winter
Global LNG prices are likely to stay high through winter, making gas harder to afford in India, according to a new report by brokerage Jefferies. Spot LNG prices rose 6 per cent week-on-week to an average of USD 32 per million British thermal units (mmBtu).
Tighter supply in Europe is a key reason. EU gas storage stands at 75 per cent, compared with 83 per cent at the same point last year, as the region heads into the cold season. Jefferies said domestic affordability is already stretched at current prices and expects gas prices to stay elevated.
Oil markets are also under strain. Crude exports from the Middle East, excluding Iran, have recovered to more than 90 per cent of pre-war levels, Jefferies said. But the physical crude premium rose 8 per cent week-on-week to USD 9 a barrel after renewed attacks in the region. Crude oil in transit has hit an all-time high, as ship-to-ship transfers keep oil on tankers for longer and importers take longer routes to reduce dependence on the Middle East.
Shipping costs remain a heavy burden. Freight rates are nearly eight times what they were when the conflict began, despite a 3 per cent weekly decline, and freight now makes up more than 25 per cent of the landed cost of crude, compared with 3 per cent earlier. Jefferies warned that rates could stay high in the near term because of repeated attacks on oil tankers.
Indian oil marketing companies (OMCs) are feeling the pressure. The discount on Russian Urals crude to Brent has narrowed to USD 2 a barrel from USD 14 at the end of February, while the Dubai discount widened sixfold in a week to USD 4. OMCs’ crude procurement costs are broadly in line with the Indian crude basket price of USD 118 a barrel, leaving them with steep marketing losses. Jefferies estimates current losses at Rs 25 per litre on petrol and Rs 37 per litre on diesel, based on 15-day average pricing.
Ukrainian attacks on Russian refining infrastructure have cut Russian exports and tightened the middle distillates market. Jefferies said supply chains will take time to normalise, which should keep margins elevated through FY27.
Petrochemicals tell a different story. Damage to two major facilities each in Iran and Saudi Arabia, along with disrupted naphtha shipments to Northeast Asia, has pushed average margins on polyethylene, polypropylene and PET up 55 per cent from end-February, which Jefferies says aids Reliance’s oil-to-chemicals profitability.
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