Recently prices of West Texas Intermediate (WTI) in the United States fell to minus $ 40.32 a barrel. WTI is one among the three benchmark crudes, the other two includes Brent Blend, and Dubai Crude.
Reason for this plunging price:
- The falling price of WTI was driven by a trading contract deadline to oil traders to sell off the current futures contract.
- Too much supply and little demand.
- The traders needed buyers that are capable of receiving and storing that much oil, and those buyers are in short supply.
- Price war between Saudi Arabia and Russia. Both the countries disagreed over the production cuts required to keep the price stable.
- Lockdown due to pandemic novel corona virus has resulted into the standstill of the world economy which further skewed the demand-supply curve.
Falling price of WTI and its impact on India :
The Indian crude oil basket does not comprises of WTI. It has only Brent crude and oil from some of the Gulf countries, so there is no direct impact.
However, since oil is globally traded and the weakness in WTI is affecting the falling prices of Indian basket as well.
Why India cannot reap maximum benefit fromthis declining crude oil price?
Along with the WTI, price of the Brent crude has been in constant decline. Current prices of the Brent crude is $21.44 per barrel.
In this scenario, the dropping price can be an opportunity for India to improve her fiscal health. Estimates say, if the price of the crude oil stays below $35 per barrel for the whole year, then India’s saving could be beyond 30 billion US dollar.
But because of the worldwide lockdown due to novel corona virus, the demand in India is also on a decline. Hence, India cannot benefit from the consumers at the present scenario.
Secondly, the country has limited Strategic Petroleum Reserve(SPR) capacities, which is just 39 million barrel(MB) as compared to US 730MB, China 550MB, Japan 528MB and South Korea 214MB. As a result , India cannot buy in surplus due lack of storage facility.
The country at present has three locations for SPR in Mangalore, Visakhapatnam and padur in karnataka. Chandikhol in Orissa is under construction.
Thus, India can reap a very little benefit from the falling crude oil price.