BackIndia taps strategic oil reserves to cool prices
India strongly believes that the pricing of liquid hydrocarbons should be reasonable, responsible and be determined by market forces, says petroleum ministry
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India, the world’s third-largest oil importer, has agreed to release 5 million barrels of crude oil from its strategic oil reserves in coordination with other major consumers, including the US, China, Japan and South Korea.
“India has repeatedly expressed concern at the supply of oil being artificially adjusted below demand levels by oil-producing countries, leading to rising prices and negative attendant consequences," the oil ministry said in a statement on Tuesday.
However, oil prices rose, erasing an earlier loss, as the plan from consumer nations to tap their strategic oil reserves was less severe than markets expected.
Futures in New York wiped out losses to trade above $77 a barrel. The US committed to releasing 50 million barrels as part of the plan. While the headline size of the US release is large, a significant chunk of the crude will be borrowed—to be returned later—leaving traders expecting tighter balances down the line.
The decision to release reserves puts major consumers on a collision course with Opec+, which views such a release as unjustified and may reconsider plans to add more supply at a meeting on 2 December.
India has an existing crude storage capacity of 5.3 million tonnes (mt), including 1.33 mt in Visakhapatnam, 1.5 mt in Mangaluru and 2.5 mt in Padur. Built at a cost of $600 million, these reserves are operational and are sufficient to meet around nine-and-a-half days of India’s crude oil requirements.
Mint reported on 18 November that the US reached out to India and other major oil consumers to release their strategic petroleum reserves to cool crude oil prices. This buyers’ response comes against the backdrop of repeated requests of the US and India to the Organization of the Petroleum Exporting Countries (Opec)-plus grouping to up production being ignored, even as petroleum product prices are at a record high. India has also been bilaterally raising the issue with major oil-producing countries such as Saudi Arabia, Kuwait, Qatar, the United Arab Emirates, Bahrain and Russia.
Major oil consumers, including India, have been unsuccessfully trying to persuade the Opec-plus grouping, comprising 23 countries, that rising crude prices will have an impact on global economic recovery. Given high oil prices, countries such as India are also pushing for ethanol blending and electric vehicles. “In a bid to control inflationary pressures, the government reduced ‘central excise duty’ on petrol and diesel by ₹5 and ₹10, respectively, on 3 November. It was followed by a reduction in VAT on fuel by many states. These difficult steps, despite the high fiscal burden on the government, were taken to provide relief to citizens," the statement said.
Petrol and diesel were selling at ₹103.97 and ₹86.67 per litre, respectively, in Delhi at Indian Oil Corp. Ltd outlets on Tuesday. The cost of the Indian basket of crude, comprising Oman, Dubai and Brent crude, was at $79.16 per barrel on 22 November.
Last year, India bought crude oil at $19 a barrel to fill up its 5.3 mt of strategic reserves, and in the process, saved $685.11 million. India also plans to build an additional 6.5 mt of strategic reserves. In comparison, International Energy Agency (IEA) members maintain emergency oil reserves equivalent to at least 90 days of net imports. IEA countries hold 1.55 billion barrels of public emergency oil stocks. In addition, 650 million barrels are held by industry under government obligations and can be released as needed.
India is also drawing up a plan to counter the influence of the Saudi Arabia-led cartel on global crude supplies as it seeks to coordinate sourcing by state-run and private refiners before roping in other Asian oil importers such as Japan and South Korea, as reported by Mint earlier. An earlier attempt to form a buyers’ collective between China and India, the world’s second- and third-largest oil importers, failed to gain traction following border clashes last year.
India is dependent on imports to meet 85% of oil demand and 55% of natural gas requirements. Opec accounts for a majority of India’s crude oil imports and around 40% of global production. India spent $62.71 billion on crude oil imports in FY21, $101.4 billion in FY20, and $111.9 billion in FY19.
Bloomberg contributed to the story.
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