Sub-zero WTI crude prices mean nothing for India — the impact could even be negative, says expert

• The price of World Trade Intermediate (WTI) Crude’s futures may have dipped below $0 but that’s not good news for India.
• India doesn’t consume WTI Crude but the benchmark Brent Crude.
• In addition, it cannot build up its storage capacity overnight especially with the supply glut amid the Coronavirus lockdown.
• If anything, the impact for India in the short run could be negative according to Madhu Nainan, the editor of market intelligence newsletter Petrowatch.

One would think that World Texas Intermediate (WTI) Crude’s futures prices falling below $0 — to more than negative $40 a barrel — would be a reason for India to celebrate, but it’s not.

It could, however, look like an opportunity as it’s the second-largest importer of crude oil in the world. The country imports more than 80% of its crude requirement. However, there are several mitigating factors which result in an overall negative impact.

First off, India doesn’t consume WTI Crude. It buys Brent Crude, which is the world benchmark, but also more expensive. Brent Crude which is still trading at $25.34 per barrel — not cheaper than a bottle of coke or water.


“In fact, impact will be negative, Indian companies who have already bought crude at higher prices like IOC and others. They will have negative showing on their books,” Madhu Nainan, the editor of market intelligence newsletter Petrowatch, told Business Insider.

Apart from state-owned refiners like Indian Oil, HPCL and BPCL, India also has Reliance Industries’ refinery at Jamnagar which is export-oriented. It imports crude, refines and exports finished products and hence could be heavily impacted. Homegrown oil exploration companies like ONGC and Oil India too will be affected due to a downward trend in global prices.

"However, the additional $30 fall of this week is good for India - but there is also a down side. If oil prices are too low, the economies of oil rich gulf countries will be hurt, threatening the job prospects of the 8 million Indians working in the gulf countries. India is the largest recipient of foreign remittances due to these workers – very low oil prices will hurt this cash stream," Amit Bhandari, a fellow of Energy and Environment Studies at Gateway House told Business Insider.

This isn’t an ‘opportunity’ for India
At a macro level, even if India wanted to switch buyers to take advantage of lower prices, storage capacities can’t be scaled up overnight. Had storage capacity been ample, one has to realise that demand is currently at all-time low with people at home and factories shut down amid the nationwide Coronavirus lockdown. This lack of capacity itself crashed oil futures in the US.


Many said that fall in the price of WTI Crude’s futures is an ‘opportunity’ for India but that would only be true if India had the storage capacity, to begin with.

India’s ambitious and costly Indian Strategic Petroleum Reserves (ISPR) programme only has the capacity to store 36.92 million barrels. It is sufficient to meet India’s pre-COVID crude consumption for 10 days. Some of its storage has been leased in international players.


“There are companies like Saudi Aramco and Adnoc who have contracted that capacity. It’s their crude. India has no claim over it. And, you can’t create storage overnight. We can’t buy all this crude and store it somewhere,” explained Nainan.

In addition to the lack of storage, demand is in a slump. With the nationwide lockdown in place, the demand for transportation fuel — like petrol, diesel and ATF — is at an all-time low.



“Demand in the normal times is huge, today demand has kind of tapered off. So there isn’t much of a positive impact for India. Even if we have the storage capacity or the usual high demand it wouldn’t change much. WTI Crude is just a straw in the wind,” said Nainan.

India’s oil comes from the oil cartel OPEC+
India’s basket of crude oil is made up of Brent Crude, Oman and Dubai. The pricing for Brent Crude is influenced primarily by the oil cartel, Organization of the Petroleum Exporting Countries Plus (OPEC+), which includes Russia.

"India imports 4 million barrels/day (1.4 billion barrels/year) of oil. The country has been benefitting from the falling prices of oil for the last five years, when oil dropped from a peak of $110/barrel to $50-60/barrel last year, enabling India to invest in public service programmes," said Bhandari.

The reason their prices haven’t plummeted during the global lockdown is because they cut production earlier this month following a demand crunch. Their prices have been aided by the fact that China, the biggest importer of crude oil, is now opening up its factories once again after the nationwide lockdown during the Coronavirus pandemic.

“Trade expects the markets to start recovering sometime in June. They expect full recovery by May 2021. This is a temporary glitch. India imports 82-83% of its crude oil requirements. The trade is going to get big for us,” said Nainan.

According to the Petroleum Planning and Analysis Cell, India’s basket of crude, which includes the average of Oman, Dubai and Brent Crude, cost around $20.56 a barrel on April 17. In March, the cost was $33.36 and $54.56 in February.

Last financial year, 2017-18, the basket of crude was even more expensive at $56.43 increasing from $47.46 in 2016-17.

"The key for oil producers now, will be to lock in demand. India, with its large and growing market, will be a key guarantor of demand security, especially for the Gulf countries. India needs to renegotiate this status to work out new economic and political arrangements with the oil exporting countries," said Bhandhari.

See also:
Here’s why a crude oil crash won't reflect fast on your petrol and diesel bills

US oil prices turn negative for the first time in history

Mukesh Ambani’s RIL loses ₹30,000 crore in the first few minutes of trading

Crude oil prices didn’t fall below zero, futures did – and here’s what it means