Petrol and diesel prices in India have remained unchanged despite a sharp drop in global crude prices, significantly reducing the import bill. Gains from the falling oil rates are yet to reach the consumers in the country.
India imports nearly 83% of its oil requirements. While the oil rates of all major trading organizations continued to dive, including West Texas Intermediate, and Brent Crude, which slumped to less than $16 a barrel, the prices of petrol and diesel prices remained the same for over a month in the national capital at Rs.69.59 and Rs.62.29 per litre, respectively. In addition, the volatility in the global crude market has prompted the government to raise the margins on oil futures.
Due to the pandemic, the global economy is under severe stress not seen since the Great Depression in the 1930s. Consequently, there have been large production cuts, even as the markets waited on the next move of the OPEC and the Texas Railroad Commission given the turmoil. April 23 marked a fifth consecutive week of crude losses, driving the prices to hit the century’s lowest. As demands continued to fall, Brent Crude slumped to less than $16 a barrel while WTI saw an unprecedented dive into the negative territory. Its crude prices turned negative for the first time with the market awash with excess supply.
A glut has been building since Saudi Arabia and Russia, the two leading OPEC+ nations, failed to renew output cuts last month. While these countries agreed to new curbs this month, the pandemic has led to a steep fall in demand. The COVID-19 outbreak has negatively affected the oil market, raising concerns about potential long-drawn-out volatility.
The slump in oil prices is likely to continue, with supply outstripping demand, at least for a few months to come. As oil tanks are full or already booked on land, traders are struggling to find enough ships, caverns, and pipelines to store the abundant fuel. It is hard to gauge the world’s total oil capacity, but signs that the limit is being reached are increasingly evident. Moreover, rising sea storage is one of the indicators. According to traders and shipping data, dozens of oil tanker vessels have been booked to store some 30 million barrels of diesel, gasoline, and jet fuel at sea as floating storage. If the storage concerns continue to persist, the Brent prices are likely to hit zero.
Oil producers, refiners, and traders in the United States are also resorting to unusual tactics, such as storing fuel in railcars or unused pipelines, as WTI crude prices turned negative on April 22. These developments have forced the Trump administration to consider policy revisions for bailing out the industry. However, with reduced demand, there is little the U.S. can do to head off steep losses and insolvencies. Prices are likely to remain at the bottom in the short-term with more expected shut-ins.
(Simran Nagpal contributed inputs for this article)
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