Middle East Supply Concerns, Russian Diesel Export Decline, and Indian Windfall Tax Cut Shape Market Dynamics

Price

• Brent crude futures for October delivery, which expire on Friday, were up 23 cents, or 0.3%, at $80.17 a barrel by 0410 GMT.
• The more actively traded November contract rose 20 cents, or 0.2%, to $79.02. U.S. West Texas Intermediate crude futures gained 18 cents, or 0.2%, to $76.09. MCX crude oil prices opened at 6,400 with a gain of 0.60%.

Demand and Supply

• The windfall tax on petroleum crude has been slashed to ₹1,850 per tonne, as per a notification issued by the central government late on Friday, August 30.
• The new rate is 12% lower compared to the previous windfall tax of ₹2,100 per tonne for petroleum crude, which was fixed by the government in the last fortnightly review on August 16. At the start of this month, the tax stood at ₹4,600 per tonne.
• Meanwhile, the windfall tax on the sale of diesel and aviation turbine fuel (ATF) by Indian refiners has been retained at nil.
• The Indian government began imposing the windfall tax, or the Special Additional Excise Duty (SAED), in July 2022 after refiners drew superprofits due to the export of crude at elevated global prices.
• The move aims to ensure sufficient supply in the domestic market. The tax rates are revised on a fortnightly basis after considering the average global oil prices over the preceding two weeks.

News

• On Friday, international crude oil rates edged lower, with Brent futures closing at $78.80 per barrel, down 1.4%. The U.S. West Texas Intermediate (WTI) futures witnessed a sharper decline, closing 3.1% lower at $73.55 a barrel.
• The reduction in the windfall tax on petroleum crude is expected to benefit Indian refiners by improving their margins on exports. This is likely to keep oil stocks in focus during the early trading session on Monday, September 2.
• In the past, an increase in the SAED on petroleum crude has led to a plunge in the shares of oil marketing companies (OMCs) in the subsequent trading session. Conversely, a reduction has been followed by OMCs trading higher on the bourses.
• Notably, oil stocks traded in the green on Friday, with BPCL settling 0.34% higher at ₹357.65 apiece on the NSE, and HPCL ending 0.77% higher at ₹419.05.

Expert Opinion

• As September approaches, Russia's seaborne diesel and gasoil exports are projected to hit their lowest level in a year, ranging between 2.7 million and 2.8 million metric tons. This decline is primarily due to refinery maintenance and increased domestic fuel demand. Although refinery operations were stable or slightly higher than in July, diesel production is expected to drop as secondary refining units undergo overhauls.
• Consequently, exports to key markets like Brazil and Turkey are anticipated to decrease significantly, with other regions likely stepping in to fill the supply gap. Maintenance activities in Russian refineries are expected to intensify in September, potentially exacerbating the supply shortfall further.