India will tap oil stockpile in step with US, other to calm prices

NEW DELHI: After questioning the US proposal initially, India has agreed to release five million barrels of oil – or roughly a day’s consumption – from its strategic reserves in a co-ordinated manner with three big Asian importers with the aim of checking runaway crude prices.

Though the timing is yet to be worked out, this will be the first time that India will release its reserves for market intervention since it filled up the first storage in 2018. However, Indian Strategic Petroleum Reserves Ltd, the state-run company that operates the storages, has been selling some of the reserves since August under a routine commercial activity.

For the US, which reports said has pledged to release 50 million barrels, it will be the second time since the 2011 Libya war.

India stores about 39 million barrels of crude oil in underground caverns at three locations on the east and west coast against a daily requirement of about 5 million barrels. Altogether, the stockpiles of the world’s top five oil consumers make up 15 days supply globally, currently pegged at 99 million barrels a day. So any price relief is likely to be temporary unless other nations join the move. All member countries of the International Energy Agency together hold 1.5 billion barrels of stockpile.

Beyond the initial shock, oil market sentiment will be more susceptible to the worsening

Covid

situation across Europe. No wonder India had initially doubted the effectiveness of the move. “Strategic oil reserves weren’t ever intended for a situation like this… It’s for a force majeure situation, if there’s an earthquake, a global outbreak of hostilities, oil minister Hardeep Singh Puri had told Bloomberg TV last week.

Admittedly, oil prices have slipped below $80 a barrel since the news of the US move to rope in India, China, Japan and South Korea broke last week. But oil is showing resistance at $78-79 as the news only added to the existing market anxiety over Covid in the Eurozone, even as demand is rising from Asia. This is unlikely to be bridged by a one-time tapping of the stockpiles.

India appears to be in the same boat as the US as the leadership in both countries face popular anger and inflationary pressure from high oil prices. The Narendra Modi government had cut fuel taxes earlier this month ahead of crucial state polls.

“There are five million barrels sitting there but they (OPEC) are not producing,"

Puri

had told CNN last week after talks with OPEC counterparts in Abu Dhabi.

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