INDIA COULD NOT AVAIL BENEFIT OF OIL DROP DURING LOCKDOWN

INDIA COULD NOT AVAIL BENEFIT OF OIL DROP DURING LOCKDOWN

BY Vijay Thakur, Special Representative, The Statesman, vijaythakurx@gmail.com 

With WTI (West Texas Intermediate) crude oil price crashing to negative in the International market, little is going to change in the domestic price of petrol and petrol barring a marginal reduction of a rupee one or two, feels oil expert.

The WTI crude oil price fell to its historic low on its monthly closing on Monday from USD 10 a barrel to negative of around USD 36 a barrel. It is for the first time in the world history that crude oil, which had once touched USD 145 a barrel in 2008, was sold at a negative price, which means you get nearly USD 36 to buy one barrel of WTI crude oil.

In another word, a buyer does not need to pay anything for buyer crude oil, but in return, he would get USD 36 (nearly Rs 2700) for purchasing a barrel (159 litres) of crude oil. This all was because future traders sold heavily on the monthly closing as there was no storage space at the key delivery points in the US.

The demand and supply gap of WTI crude oils have increased at unimaginable label due to “stay at home orders’ in most US states. And the future traders in the US market, who have no storage space to keep the crude sold at a negative price to avoid any additional expenses of keeping it. “In other words, storage of crude oil has become costlier than its price and they the future traders sold it at negative during monthly closure on April 20,” said a senior officer of an Oil Marketing Company requesting anonymity.

Having said all that, WTI crude oil going negative during the monthly closure, would make little impact on Indian petrol and diesel price, he said. “In the international market we have three main Benchmark crude oil, WTI crude oil, Brent blend, OPEC, and Dubai crude, and Indian refineries are not designed to use WTI crude oil,” he said.

India’s entire crude basket represents oil from Oman, Dubai and Brent, and not WTI. The WTI is mostly relevant for the US, Canada and Mexican markets, he said.

And the price of Brent crude, however, has only seen a fall of about five per cent, and was still hovering around USD 27 a barrel and was not as cheap as WTI, the officer pointed out.

But even if India were to buy WTI crude, it would not have helped it as there was hardly any capacity left to store the oil. Though Modi government has increased the strategic oil reserves capacity to 15 Million Metric Tonnes, it had already stored most of its capacity, the officer said.

“Thirdly and most importantly, our domestic petrol and diesel requirement has seen a steep decrease due to lockdown. Even the Union government has not passed on the major portion of the benefit due to recent decline in crude oil prices and preferred to increase taxes on it apparently help centre and state governments in generating revenues,” he said.

Last month, Centre had increased duties on petrol and diesel by Rs 3 a litre. It also has Parliament’s approval to raise it further by Rs 8 a litre. Besides it has also notified an increase of Rs 1 litre on road and infrastructure cess collected as additional excise duty and a Rs 2 per litre increase in special excise duty.