India, others release oil from reserves to force OPEC+ to restore output

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Updated: November 24, 2021 8:37 AM

Putting pressure on large oil producers, New Delhi had earlier cut shipments from Saudi Arabia by a quarter.

OPECThe petroleum reserves established are strategic in nature and the crude oil stored in these reserves can be used during an oil shortage event, as and when declared so by the Central government.

India has joined the USA, China, Japan and the Republic of Korea and others, in releasing crude oil from their respective strategic resources to counter the OPEC+ group’s decision to extend the production cuts, even as oil prices remain firm. Putting pressure on large oil producers, New Delhi had earlier cut shipments from Saudi Arabia by a quarter.

“India has agreed to release 5 million barrels (about 0.7 million tonne) of crude oil from its strategic petroleum reserves,” the government said in statement on Tuesday. This is the first time ever that India, which stores 5.33 million tonne (mt) or about 38 million barrels of crude oil in underground caverns at three locations on the east and west coast, is releasing stocks with an objective to counterbalance the producers’ stand.

Taking advantage of low crude oil prices in April-May, 2020, the country’s existing strategic petroleum reserve facilities — located in Visakhapatnam (1.3 MT), Mangaluru (1.5 MT) and Padur (2.5 MT) — were filled to full capacity. The reserve can provide for about 9.5 days of crude oil requirement as per the consumption pattern of FY20. State-run oil marketing companies can stock for another 64.5 days.

“India strongly believes that the pricing of liquid hydrocarbons should be reasonable, responsible and be determined by market forces,” the government said “India has repeatedly expressed concern at supply of oil being artificially adjusted below demand levels by oil producing countries, leading to rising prices and negative attendant consequences,” it added.

Around 85% of the country’s crude oil requirement is met via imports. During October, the price of the Indian basket of crude varied between $76.4 and $84.8 per barrel, at an average price of $82.1 per barrel. The price of Indian basket of crude is currently at $80.7/barrel, up from $69/barrel in mid-August, supported by global demand recovery and limited production from major oil exporting nations.

Crude oil import by India in April-October was 118.5 million tonne, recording an annual rise of 13.3%. Due to increase in global crude oil rates, the value of the import was $61.1 billion, 127% higher than the same period in 2020.

The petroleum reserves established are strategic in nature and the crude oil stored in these reserves can be used during an oil shortage event, as and when declared so by the Central government. With the hope of bringing down global crude prices, India had reiterated its request to oil producing countries to increase their output at the recently held energy industry event ‘India Energy Forum’ by CERAWeek. “OPEC plus should factor in sentiments of energy consumers,” Union minister of petroleum and natural gas Hardeep Singh Puri had said, adding that “We are all in this together since there is a direct correlation between economic activity and oil price” and slowing economic activity will also lower demand for oil and gas.

Interestingly, responding to requests to raise crude production and bring down prices, oil producers had earlier suggested countries to use their strategic reserves way back in March. “With regard to India, very simple, I would ask my friend that he withdraw some of the cheap oil that they bought in April, May, and June. There is an opportunity cost for not withdrawing it now,” Saudi Arabia’s energy minister Prince Abdulaziz bin Salman had said in March.

 

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