India filled reserves with cheap crude after COVID crash, saved ₹5K crore

India saved more than ₹5,000 crore ($685.11 million) by picking up 16.71 million barrels of crude oil when prices slipped in the international market following the COVID-19 lockdown across the globe.

Petroleum & Natural Gas Minister Dharmendra Pradhan submitted this information on Monday in reply to a question posed in the Rajya Sabha by Rajiv Satav of the Congress. While demand for petroleum products in India also plummeted after lockdown was imposed by the end of March, India purchased more than the regular requirement of crude to fill the strategic reserves located at Karnataka and Andhra Pradesh.

Cheapest in April

In reply to another question posed by Rajya Sabha member Sanjay Seth of the BJP, Dharmendra Pradhan submitted that the average price of crude oil in the international market was around $64.31 per barrel during January 2020. As the coronavirus started spreading across continents, the price declined to $54.63 per barrel in February 2020 and $33 per barrel in March. As the lockdown in most countries caused panic, international crude prices of the type bought by India declined to $19.90 per barrel in April, according to the Petroleum Minister.

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This is when India contracted unusually high quantities of crude — 16.71 million barrels — to stockpile fuel in the three strategic reserves located in Karnataka and Andhra Pradesh. Subsequently, price of crude oil in the international markets increased to around $30 per barrel in May and further to $40 per barrel in June as signs of economic activity reviving emerged across the globe.

In the written reply to Rajiv Satav, the Petroleum Minister explained how India managed to buy crude oil at around $19.90 per barrel after the crash in prices due to global spread of the coronavirus pandemic. This price was less than one-third of the prevailing price of crude in January 2020, before the Covid-19 crash.

India bought 57.2 million tonnes of crude during April-July 2020 as compared to 74.9 million tonnes during April-July 2019, Dharmendra Pradhan said in reply to Sanjay Seth. The spending on crude purchases during April-July 2020 was $12.4 billion or Rs 93,467 crore as compared to $36.3 billion or Rs 2,51,679 crore during April-July 2019. As demand and prices were impacted due to Covid-19 lockdown, the spending on crude purchases during this period was lower by $24 billion. In other words, India’s spending on crude was lower by $6 billion per month.

Strategic reserves

“Taking advantage of the low crude oil prices in international market, India purchased 16.71 million barrels (mbbl) of crude in April-May 2020 and filled all the three Strategic Petroleum Reserves created at Vishakhapatnam, Mangalore and Padur,” Dharmendra Pradhan said in reply to Rajiv Satav.

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“The average cost of procurement of crude oil was US $19 per bbl as compared to US $ 60 per bbl prevailing during January2020, thus resulting in saving of US $ 685.11 million, which amounts to Rs. 5069 crores (at  1US $= Rs.74),” the Petroleum Minister added.

Consumers still feel the pinch

Despite the crude crash in the international market that enabled cheaper purchases, retail prices of petrol and diesel have not been lowered by oil marketing companies like the Indian Oil Corporation. This has led to complaints that the government was taxing customers heavily even during the Covid-19 economic slump. Satav wanted to know why the government was not lowering retail prices of fuel and if this was fuelling inflation.

In response to the complaints about high retail prices of petrol and diesel, Dharmendra Pradhan deflected the query to oil companies. “Prices of petrol and diesel have been made market-determined by the Government with effect from 26.06.2010 and 19.10.2014, respectively. Since then, the public sector Oil Marketing Companies (OMCs) take appropriate decision on pricing of petrol and diesel in line with international product prices and other market conditions.  Oil Marketing Companies take a decision on retail selling price after considering various aspects including international product prices, exchange rate, tax structure, inland freight and other cost elements,” said the Petroleum & Natural Gas Minister. Petrol and diesel prices are market-determined and increase or decrease according to market trends was the explanation given by the Ministry, shifting the responsibility on oil marketing companies like Indian Oil Corporation.