In a first, oil prices plummeted to negative on Monday (April 20) in the US as the demand for energy fell down sharply due to the coronavirus COVID-19 pandemic. According to The New York Times, the fuel storage tanks in the United States were near capacity making it tough for the companies to hold all the unused crude.
Though the oil prices have fell significantly in the US, it is highly unlikely that Indians will benefit from falling crude oil price. Notably, the oil trade in the international market is done in barrel and not litre. One barrel is equal to around 158.987 litres. Currently, the world has the capacity to store 6.8 billion barrels but around 60% oil storage tanks across the world are already full to the brim.
It is expected that oil tanks used to store crude oil in the US would also get filled in the next 1-2 days and other countries like South Africa, Angola, Brazil, Nigeria and Caribbean nations will also find it tough to store crude oil soon.
Experts maintain that around 2,543 crore litre crude oil are currently loaded on ships lying idle on seas across the world and the oil companies are worried about storing these crude oils once thesse ships reach the shores. Around 34,79,74,000 litres crude oil which has left from Saudi Arabia to the US is still lying on the ships stranded in the seas and it is still unclear where the US will store this oil.
Though the people are saying that the price of crude oil has now fallen to as low as a bottle of water but you must understand this fact that the fall in fuel prices in the US will not affect the prices of petrol and diesel in India.
In the US, the oil price is determined as per WTI (West Texas Intermediate) crude price. On the other hand, Organisation of Petroleum Exporting Countries (PEC) determine the oil price as per Brent Crude Price. The OPEC has 15 nations as its members including Saudi Arabia, UAE and Qatar.
The price of Brent crude, which is the more relevant benchmark for India, has not fallen so drastically as the WTI crude price and this is one of the most important reasons why the oil prices in India will not come down significantly in the near future. The price of Brent crude has also fallen since the coronavirus pandemic and India is expected to gain from lower crude prices, as the oil import bill will narrow.
Notably, India buys most of its crude oil from OPEC nations and these countries are still selling oil at USD 25 per barrel. The price of around 66% crude oil across the world is determined by Brent Crude Price and that's why the fall in oil prices in the US will not affect the Brent Crude Price.
One more reason why the oil prices are unlikely to witness any drastic cut in India in the coming days because the Centre has also been known to raise excise duties and taxes on auto fuels after the fall in global oil prices to supplement its revenue collections.
India also buys crude oil from the US but the Centre cannot buy a huge amount of oil from the US because India lacks the required storage facilities for crude oil. India currently has the capacity to store 85,000,000 litres of crude oil and it is enough to fulfill the fuel needs of the country for 7-9 days. India, however, wants to increase its storage capacity considerably but India is currently not in a position to benefit from the falling fuel prices in the US.
