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Context:
Crude oil, caught in a spiral of demand destruction due to the coronavirus spread and oversupply worries from the unravelling of the OPEC-plus arrangement, has faced a major rout.
From about $65 a barrel in end-December, Brent oil has crashed to about $35 now a level last seen in early 2016.
The impact of Covid-19 will be felt on the global demand for oil, too, as a dramatic increase in Covid-19 cases has put further downward pressure on demand for commodities, including oil.
Thus, both supply and demand shocks have coalesced to roil the crude oil market. Since the start of the year, oil prices have fallen by about a third. Prices may drop further under the weight of the twin assault of higher supply and lower demand.
Price war for market share gains between Russia and Saudi Arabia:
The last two trading sessions have been particularly brutal for the fuel with Saudi Arabia and Russia, the prime players in the OPEC-plus group, refusing to extend their output cuts to stabilise already weak prices.
This has heralded a price war for market share gains, with the Saudis firing the first salvo and the Russians expected to retaliate.
The race to the bottom could result in many casualties among global oil producers, including the US shale oil industry.
Why India Need Strategic Petroleum Reserves?
India still needs to import 83% crude oil of its requirement which increase import bill of india which further widens the Current Account Deficit (CAD) of the country.
The fluctuations in the price of the crude oil in the international market create an atmosphere of uncertainty in the country.
So, in this way the economic condition of the country is dependent on the oil importing countries i.e. Gulf countries which does not suit to a sovereign country like India.
It is known that the current petroleum reserves of India are sufficient to fulfil just 13 days oil requirement of the country.
But this is not sufficient to tackle any unpredicted event occurs in the international crude market. So India want to have petroleum reserves of 90 days.
In order to ensure energy security for 90 days, India needs to build up additional petroleum reserves of 13.32 metric ton.
Declining of Oil prices: Impact on India:
Government has to get its act together to reap the benefits in the long term:
Indian Strategic Petroleum Reserves Ltd is responsible for building buffers. Currently, it has 5.33 million tonnes of underground strategic reserve facility in Visakhapatnam, Mangaluru and Padur (Karnataka), while another 6.5 mt facility is coming up at Padur and Chandikhole (Odisha).
Work on two more facilities — at Bikaner in Rajasthan and Rajkot in Gujarat.
What works for India:
It is the age of globalization where the price of a product is determined by the demand-supply chain.
The interconnected nature of international oil markets makes disruptions in any given area likely to affect prices in much wider geography.
But does the price offer any comfort? Energy expert says, “Neither ultra-low nor ultra-high prices are good for India.
Prices that encourage growth in both the exporting Gulf countries and India are good for us; after all, nearly 10 million Indians work in the GCC countries, who send over $40 billion in remittances.”
Ultra-low prices may help India in the short run but can hurt in the medium to long run.
The opposition has urged the government to pass on the benefits of the low crude prices to the common man, by reducing the retail rates of petrol, diesel and cooking gas.
Conclusion:
As a summary, it can be said that construction of strategic petroleum reserves by India is a great way to secure country’s energy security.
These reserves would act like piggy bank for India in the event of war like situation in the gulf countries or other oil importers of India.
India wants to develop a transparent market for natural gas where the price is determined on an exchange. The aim is to increase the use of natural gas in India’s total energy mix from 6.5 percent to 15 percent between 2028 and 2030.
India must safeguard its renewable energy sector and redouble its efforts to gassify its economy.
These continue to be the best bets to power India into a more secure and green future. The present instability in the global oil market further underlines the need to move away from the energy sources of yesterday.
By: DATTA DINKAR CHAVAN ProfileResourcesReport error
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