Opportunities for India as price of crude plunges amid COVID-19 crisis

Over the past few weeks, the global crude oil market has been hit by a severe demand shock due to a halt in economic activity as many nations locked down to combat COVID-19. This has been compounded by a price war between oil-producing nations and lack of storage space as crude production continued while demand for it plunged. Things reached such a stage that companies running oil drills in the hinterland such as in Texas, US, and Canada’s Alberta were actually paying money to get buyers to take away their crude.

Obviously, things will not remain as such forever and the black gold’s price, which has been tumbling for long, will stabilise and eventually creep up as the global economy’s machinery starts humming once again.
The opportunity for India, a consuming nation that imports most of its crude requirements, is immense. Its price basket for crude imports stands at around $20 a barrel now and it can stock up by booking crude in the futures market, saving valuable foreign exchange. The government, which is staring at the possibility of its tax targets being way off the mark given the fact that economic activity is likely to stay challenged, can take advantage of the low prices to bridge the tax collection gap somewhat.

Another major opening lies in renting out reserve space. India has strategic reserve space for about 39 million barrels of crude, half of which is already full and the rest expected to be filled up by fuel being shipped in over the next few weeks. Refiners have the capacity to store about another 40-45 million barrels, most of which is filled up. India for long has been working on expanding its storage capacities and renting them out to Gulf-based companies.

The current low prices and oversupply situation gives India a unique opportunity to not only implement its plans quickly but also to tie up with more oil drillers and develop larger storage spaces for rent. India could even think strategically and rent space in friendly neighbouring countries to expand its reserves, filling it up with cheap crude for use when prices rise. This is one opportunity that the country could reap profits from, even in these dark times.