News/Context : India is cutting shipments from Saudi Arabia by about 25% on the backdrop of OPEC+ extended production cuts, and has been most forceful about flexing its muscles as a major oil consumer.
India is planning to get about 5 million barrels of crude oil from its strategic reserve which is the country’s emergency stockpile. According to a government official, this is to cool off the international oil prices, along with the major economies like the United States and Japan.
India stores 38 million barrels of crude oil (which is around 5.33 million tonnes) in underground caverns at three locations on the west coast and east coast. This will be the first time ever that India would be releasing crude oil stocks for such purposes. Out of 38 million barrels, about 5 million barrels will be released starting as early as 7 to 10 days, as per an official who said anonymously.
The crude oil stocks will be sold to refineries of Hindustan Petroleum Corporation Limited (HPCL) and Mangalore Refinery and Petrochemicals Limited (MRPL), which are connected by pipeline to the Strategic Reserves. As per the official we can even witness more release later.
Earlier in the last week the US had made an unusual request to some of the largest Oil consuming nations of the world including India, China and Japan to consider the release of crude stockpiles, in a coordinated effort to lower down the global petroleum/ energy prices.
This development took place after members of Organisation Of Petroleum Exporting Countries and its allies (OPEC+) had rejected the repeated requests to speed up the production.
Last week during his visit in Dubai the Oil Minister Hardeep Singh Puri Set that high oil prices will undermine the global economic recovery. India is the world’s third-largest oil consumer and importing nation and has been severely impacted by the relentless rise in international oil prices.
“We are working on releasing stocks from our strategic reserves in coordination with other nations,” the official said. “The release timing will depend on the U.S. making a formal announcement.”
It is to note here that OPEC and its other ally producers, which includes Russia, known collectively as OPEC+, have been producing 4 lakhs barrels per day to the market on a monthly basis. Many economic observers see this as not sufficient quantity to cool off the energy prices that had been rising as demand returns to pre-pandemic levels.
We have already started witnessing the cooling down in crude oil prices in the backdrop of the threat of a coordinated release along with the new coronavirus-related lockdown in Europe. Brent crude fell to $78 per barrel this week, from $86.40 a barrel peak hit on October 26.
Major economies like US, India and Japan believe that economies can witness unwanted inflation if the crude oil prices remain high and undermine the economic recovery from the covid-19 pandemic.
The retail prices of diesel and petrol shot up to record levels earlier this month and the government had to cut taxes costing 60000 crore rupees in the revenue of this financial year.
Along with India, Japan and China have also signalled their readiness for crude release.
India has built 2.5 million tonnes of crude oil storage at Padur in Karnataka, 1.5 Million tonnes at Mangalore which is also in Karnataka and 1.33 million tonnes at Visakhapatnam in Andhra Pradesh.
Half of the Mangalore storage has been given on lease to Abu Dhabi National Oil Company of UAE, the remaining is with state-owned Mangalore Refinery and Petrochemicals Ltd. (MRPL) whereas other State-owned firms and the government have stocked oil at the other facilities.
While India stores 38 million barrels and Japan as 175 million barrels, the U.S. stocks 727 million barrels crude and oil products, as a part of their Strategic Petroleum Reserve (SPR).
Md Layeeque Azam, Economics Faculty
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