The sharp fall of crude oil prices are a hot topic of debate in news and current affairs as on 20 April the market saw a historic low of crude oil ending at a negative $37.63 a barrel and how people are wondering how it might effect India? Keep on reading as here we will explain the whole scenario and its impact if any in a simple manner.
What has actually happened with Crude Oil Prices?
Due to coronavirus pandemic, the worldwide demand for crude oil prices saw historic fall as U.S. oil prices fell below zero for the first time ever. West Texas Intermediate, which is the key U.S. oil benchmark settled at negative $37.63 on 20 April. Surprisingly thats true that sellers were actually willing to pay buyers to take the crude oil off their hands has there is a lot of unused oil sloshing around American energy companies and they have facing challenges with storage.
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WTI has crashed but not the Brent Crude
It is important to note that India imports primarily from OPEC countries, thus Brent is the benchmark for oil prices in India.
So, the thing here to take into account is that India’s crude basket includes oil from Oman, Dubai and Brent crude, not WTI. The sharp low in the crude oil prices that have become the hot topic in news id mostly relevant to the local US, Canada and Mexican markets. Brent crude is extracted from the North Sea, WTI is usually extracted from US oil fields in Texas, Louisiana, and North Dakota.As per the Buisnesstoday, “Brent crude, which is what India buys has also seen a fall of about 5%, but prices are still hovering around $27 a barrel. It’s not as cheap as the WTI, which is the benchmark US oil.”
Rupee has fallen sharply against US dollar
There is another twist to the story as taking into the account that Indian Rupee is trading weaker than Dollar, even if India were to import oil from WTI the bill will be in dollars and the currency exchange differnce in the Rupee-Dollar difference will offset gains from lower crude oil prices.
Storage Capacity Issue
Hypothethically assuming if India was interested to buy WTI oil, practically for no cost at all of purchase, even then India is in short of storage capacity. As per reports, the total capacity available for storage is just 5.33 million tonnes (enough to meet 9.7 days of requirement) and the rest of the storage capacity is not ready. Also due to the COVID-19 pandemic, India in under a lockdown and all economic activities have come to a stand still, which in terms means there is no significant demand and Indian oil refiners have the existing stock.
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