Petroleum oil is a very important commodity that keeps the industrial processes running and helps the economy to prosper. It affects world politics and influences the shifting of global power from one nation to another.
Both oil and non-oil producing nations have always been in a race to amass as much oil as possible at the bare minimum price. This competition gave birth to the development of STRATEGIC PETROLEUM RESERVES (SPR). As the name suggests Strategic Petroleum Reserves are specially constructed reserves of petroleum (mostly crude oil) that acts a cushion in times of disruption in petroleum supply. The disruption may be accounted to any reason such as- higher oil prices, failure in oil extraction, delay in imports, etc.
India started its Strategic Petroleum Reserve program in 2005 under the leadership of the then Honorable Prime Minister of India, Dr Manmohan Singh. As of today, India has a total of 5.33MM i.e. 31.7 million barrel of reserve capacity under this scheme under Phase I. Vishakhapatnam has a storage capacity of 1.33MMT, Mangalore-1.5 MMT and Padur has 2.5MMT storage capacity. India eyes to add additional 6.5MMT storage capacity of 4 MMT in Chandikol, Orissa and 2.5MMT in Padur, Karnataka. This reserve is created underground to compensate for the operational, maintenance and security expenses.
Because of COVID-19, the world is witnessing an unprecedented decline in the oil prices. India majorly deals in Brent crude oil. The vicious cycle of global economic competition has started to see a scene which was never expected even in the worst of scenarios except the very fact petroleum being a non- renewable resource. Graph (oilprice.com) below depicts the trend in pricing of Brent crude oil-
It can be observed, that oil prices have been constantly following a downward trend post February-2020. All oil-importing countries viewed the trend as a silver lining shining in the darkness of the CORONA CLOUDS. They started shoring up their strategic petroleum reserves. As per the news report published by Hindustan Times dated 20th March 2020 India took hold of this progressive decline and contracted crude oil amounting to INR 690 Crores for its strategic reserves half of which is expected to be full.
As Corona has dented the transportation and industrial activities petroleum refineries have cut down the refining process. Hence the government aims to fill its strategic petroleum reserves to 100% by the third week of May 2020 which can fulfil nations demand for petroleum for 9 days in a normal situation. At the same time, it will also purchase crude oil from the Gulf to take advantage of the falling oil prices. But again, there is a twist Indian rupee has been falling badly against the US Dollar. It is in US Dollar only that the transaction of oil purchase is carried out.
Thus, the falling Indian rupee can be expected to dent a hole in the savings volume on account of falling oil prices.
The image above shows the existing capacity of the strategic petroleum reserve of the major oil-consuming countries. India ranks 3rd in the list of petroleum product consumption. Still, it can be seen that the volume of benefit in terms of saving the US Dollar will tantamount half of 50% of the worth of 31.739 million barrels even if the crude oil price is pegged at USD 45. The same can be deduced from the analysis in my previous article-https://www.gettinggyaan4u.com/2020/04/india-to-capitalize-upon-the-opportunity-of-falling-crude-oil-prices/
Hence, in the light of existing storage capacity, the benefit accrued might not be so large. But certainly, what the pandemic is training us is to reduce our dependence on unnecessary travel and unjustified industrial activity will definitely help curtail the consumption of petroleum for all the unwanted reasons. This will indirectly help save the forex reserve as well as the environment.
