India has decided to take great advantage of the recently recorded steep fall in the price of crude oil. Two government officials aware of the development said the government would buy crude oil at a cheaper rate and fill its strategic oil reserves. The government has created these strategic oil reserves to meet the needs of any emergency situation.
Government will buy crude worth Rs 5,000 crore to fill strategic reserves
The government has decided to buy oil worth 5,000 crore rupees (about 670 million dollars). This purchase will be around the price of $ 30 per barrel. One barrel is of 159 liters. The delivery of this deal will be in April-May. This supply will fill three strategic petroleum reserves. The capacity of these three reserves is 53.3 lakh tonnes. These have been constructed by India Strategic Petroleum Reserve Limited (ISPRL).
First Aramco and Adnock will be asked to fill strategic reserves
A government official said Aramco and Adnock would first be asked to fill strategic reserves as planned. The oil of this stock can be used later for commercial use. If the company refuses to add oil to the reserves at this time, ISPRL will buy the oil itself after getting the required amount from the government. Apart from this, government oil marketing companies like Indian Oil Company, BPCL can also be asked to issue contracts on their behalf to fill the reserves.
Buying oil at a cheaper rate can save $ 50-60 million
It is believed that if the current strategic reserves are half filled with the oil of the Gulf countries, then the government could save $ 500 million. The government will not only get the benefit of the current cheap price, but the Gulf oil producers have also offered good discounts on oil.
Filling the entire oil in the stock will meet the country’s 9.5 days requirement
The strategic reserves of 53.3 lakh tonnes are almost half full. If it is fully filled, then with this much oil, India will be able to meet the oil requirements of 9.5 days. These three stores are in Visakhapatnam, Mangalore and Padur. Apart from this, other reserves of 6.5 million tonnes capacity are also being built at Padur and Chandikhol. Work on two other stores in Bikaner and Rajkot will also start soon. If they are also filled after the completion of their construction, then this will fulfill the domestic requirement of more than one month. Apart from this, the Oil Ministry has asked ISPRL to try to create reserves at other places also, so that the domestic requirement of 90-100 days can be met at any time. These days, the government will save not only by filling the stock with cheap oil, but later it can also be used commercially. The existing reserves are half full and with a budget of Rs 5,000 crore, the remaining base of 53.3 lakh tonnes can also be filled.
Several agreements have already been done to fill the strategic reserves
ISPRL has signed an MoU with Adnoc for half the rent of 2.5 million tonnes of Padur reserves. Last year it also signed an MoU with Saudi Aramco to lease a quarter of the capacity of Padur reserves. ISPRL has already leased half of Mangalore’s 1.5 million tonnes reserves to Adnock. It has also filled Visakhapatnam’s 10.3 lakh tonne stock with Iraq’s Basra oil.
Crude price has fallen by 57% in two and a half months
Crude oil prices have fallen nearly 40 percent so far in March. On Friday, Brent crude is trading up around 6 per cent in afternoon trade at $ 29.75. Since the beginning of the Corona virus infection case, the oil price has been falling by around 57 percent. Brent crude closed at $ 68.91 a barrel on 6 January. It fell to $ 24.88 a barrel on Friday, March 18. Crude has become costlier by about 20 per cent in just two days from this level.
Crude came to the ground prices due to corona virus and price war
The industry came to a standstill due to the spread of corona virus infection first in China and now all over the world. Due to this, the demand for crude decreased and its price fell drastically and came down from $ 68 to around $ 50. After this, there was a discussion to reduce production in some other countries including OPEC and Russia, the Organization of Petroleum Exporting Countries, to increase the price of crude. In this discussion, Russia refused to reduce production. After this, Saudi Arabia announced to increase production on its behalf and also reduced the price of crude. This led to increased supply and price-wise, even as the market demand was low. This caused a major setback to the price of crude and it came down to below $ 30.
Many more benefits of cheap oil
- The fiscal deficit will be less: India has many more benefits due to decreasing crude prices. India supplies 80 per cent of its crude needs through imports. Due to this a large capital of the country goes out. If the oil price remains at a lower level, less capital will go out. This will reduce the trade deficit. Along with this, the financial deficit will also be reduced.
- Petrol-diesel price will decrease: The price of petrol-diesel depends on the price of crude. Crude will be cheaper, then petrol-diesel and aircraft fuel will also be cheaper. Common people and industry will benefit from this.
- Government can increase its income by increasing excise duty: Generally the government increases the excise duty on petrol-diesel and aircraft fuel when crude becomes cheaper. This does not reduce the price of these products much. That is, the public and the industry have some benefit. The government also earns a little money.
- Fall in inflation: Diesel is cheaper than crude. Diesel has an effect on the cost of everything. Therefore, inflation also decreases when crude is cheaper.