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No big drop in fuel prices in India likely
The historic rout in oil markets that sent US crude prices plummeting to as much as minus 40 a barrel is unlikely to translate into any big reduction in petrol and diesel prices in India as domestic pricing is based on different benchmark, and refineries are already filled up to brim and cannot buy US crude just yet
New Delhi: The historic rout in oil markets that sent US crude prices plummeting to as much as minus 40 a barrel is unlikely to translate into any big reduction in petrol and diesel prices in India as domestic pricing is based on different benchmark, and refineries are already filled up to brim and cannot buy US crude just yet.
With storage capacity already overflowing amid coronavirus-induced demand collapse, traders rushed to get rid of unwanted stocks triggering the collapse of US West Texas Intermediate (WTI) crude for May delivery.
Indian Oil Corp (IOC) Chairman Sanjiv Singh said the collapse was triggered by traders unable to take deliveries of crude they had previously booked because of a demand collapse. And so they paid the seller to keep oil in their storage.
"If you look at June futures, it is trading in positive territory, around $20 per barrel," he said.
Low oil prices may seem good in short-term but in the long run it will hurt the oil economy as producers will have no surplus to invest in exploration and production which will lead to a drop in production, he said.
He did not comment on retail fuel prices that have been static since March 16. Oil companies have not changed rates despite a fall in international prices as they first adjusted them against the increase that was warranted from a Rs 3 per litre hike in excise duty and close to Re 1 per litre additional cost of switching over to cleaner BS-VI grade fuel from April 1.
Petrol in Delhi is priced at Rs 69.59 a litre and diesel comes for Rs 62.29 per litre. "The negative price has no direct impact on India or Indian oil prices, as this has taken place due to crude oil produced and traded within the US.
India''s prices are driven partly by another benchmark, the Brent, which is still trading at $25/barrel. Therefore, the retail price of fuels in India are unlikely to fall," said Amit Bhandari, Fellow, Energy and Environment Studies, Gateway House.
Also, Indian refineries are already overflowing as fuel demand has evaporated due to the unprecedented nationwide lockdown imposed to curb spread of Covid-19. So, they can't rush to buy US crude.
The refineries have already cut operating rate to half because the fuel they produce has not been sold yet.
