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The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas (Reuters)
The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas (Reuters)

Opinion | It pays to buy crude

India’s basket of oil imports hasn’t become quite so cheap, but our bill has fallen sharply all the same

Can crude oil be sold at a negative price? Well, it did happen. A futures contract for West Texas oil traded at about minus $40 per barrel. In effect, this meant someone paid money to be relieved of an oil delivery in a landlocked US state. Storage is costly, after all. But, it also reflects a global market glut left by the Great Lockdown, which has shut off combustion engines that wheel and wing people around the world. Of the 100-million-odd barrels being used up daily before the covid crisis, some 30% is no longer needed, by one estimate. Overall supply has also reduced, but not by that much.

India’s basket of oil imports hasn’t become quite so cheap, but our bill has fallen sharply all the same. This makes inflation less likely, helps manage our external balance of payments better, and also grants the cash-strapped government leeway to raise its tax intake on petroleum products once traffic returns to Indian streets and air corridors. We should use this opportunity to lock-in some supplies for our future needs. We could strike new supply contracts and even ship more oil home to top up our strategic oil reserves. Storage space is at a premium today, not what goes into it.

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