Growing concerns over the Covid-19 outbreak roiled global crude oil markets on Monday, with Brent prices crashing by as much as 10%.
The international benchmark hit a low of $28.03 per barrel, far below the highs of $147 per barrel touched in July 2008. The West Texas intermediate was trading at $28.53 per barrel.
The sharp fall in crude prices has placed major consumers such as India at an advantage as it will help manage inflationary and fiscal pressures. India is the world’s third-largest crude oil buyer and the fourth-largest liquefied natural gas importer.
Brent crude prices saw their biggest single-day fall on 9 March—the sharpest decline since the 1991 Gulf War.
With global oil demand plunging due to the novel coronavirus contagion, prices are in free fall. This has been worsened by the world’s top producer, Saudi Aramco, planning to boost oil supplies to 12.3 million barrels per day in April, and Russia lifting all production curbs.
Experts believe that the current oil supply surplus situation is possibly the worst ever recorded.
“Current situation points to the possible build-up of the most extreme global oil supply surplus ever recorded," global information provider IHS Markit said in a report on Monday.
The build-up will affect US shale oil producers, in the run-up to US presidential elections slated for November.
“IHS Markit estimates that—if the price war continues amidst a global recession and coronavirus crisis—the surplus could range (from) 800 million to 1.3 billion barrels in the first six months of 2020," the report said.
Weakening demand has led Chinese state-run firms to make offers to Indian companies to offload their equity oil. Oil prices may further go down, with Goldman Sachs expecting prices to touch the $20 per barrel mark.
Every dollar per barrel drop in crude prices reduces India’s oil import bill by ₹10,700 crore on an annualized basis.
Retail prices of petrol and diesel in India track global prices, not crude, but are broadly linked to crude oil price trends.
While Indian oil companies bought crude oil as of December at around $68 per barrel, oil marketing companies now plan to buy more oil at spot prices as they look attractive.
Refiners usually buy crude in a 70:30 ratio of term cargoes vis-a-vis spot deliveries.
The cost of the Indian basket of crude, which averaged $56.43 and $69.88 per barrel in FY18 and FY19, respectively, averaged $65.52 in December, according to data from the Petroleum Planning and Analysis Cell. The price was $33.49 a barrel on 13 March.
The Indian basket represents the average of Oman, Dubai and Brent crude.