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Lack of space at India’s SPR an opportunity lost: Platts

Mumbai, April 21 (IANS) Lack of space at India’s strategic oil reserve is an opportunity lost for the country, S&P Global Platts Insight blogpost said Tuesday.

The global oil prices have crashed as Covid-19 outbreak had drastically shrunk demand and this has put crude prices in the low range of just about $20 a barrel. India, being a big importer of oil (importing 83 per cent of oil needs), could have used the current low oil prices to build its storage capacity with low cost oil inventory, thereby making savings of over $1 billion.

“Oil storage is about the only thing in demand in the crude market right now. The coronavirus pandemic has obliterated consumption and forced producers and traders to store more oil on the water as land-based facilities near tank tops. While India will fill its caverns with crude, the lack of space means it’s also an opportunity lost,” the Platts Insight blog said.

India’s combined strategic oil reserve capacity of 5.33 million mt at three locations in southern Indian – Vishakhapatnam, Mangaluru and Padur – is just over half full. Even if this is filled up completely, the country will import substitution of just 9 days, which is considered too low. India’s crude imports averaged around 4.5 million b/d in 2019.

Platts blog said India is behind major consuming countries and its Asian neighbours such as China, Japan and South Korea in theme of strategic petroleum reserve (SPR) capacity. China’s total capacity is 550 million barrels, Japan’s SPR is 528 million barrels and South Korea has 214 million barrels.

That compares to a paltry 39 million barrels for India. For India, this equates to just 9 days of cover in the event of a disruption compared with 198 days for Japan at the other end of the spectrum.

Though, the government has approved another 6.5 million mt of SPR under the second phase given the country’s reliance on oil, the capacity will only come up over next six to seven years, preventing the country to take advantage of the current oil prices.

According to S&P Global Platts Analytics, Brent crude is expected to trade below $20/b over the next couple of months before rebounding to $40/b by the year-end. Even the recovery price is low by recent standards and depends on the shape and timing of the recovery from coronavirus as people return to their cars.

It is global storage levels that have been acting as a barometer of the oil market glut, and these are the reason commentators remain bearish despite the orchestrated production cut deal from OPEC+, Platts blog said.

–IANS

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