Fuel prices likely to drop further as Centre decides to release crude oil from its reserves

BENGALURU, 24 Nov 2021 [Fik/News Sources]: The prices of petrol and diesel could see a further drop in the coming days as the Centre has decided to release five million (50 lakh) barrels of crude oil from its Strategic Petroleum Reserves.

The decision was taken after Minister of Petroleum and Natural Gas of India Hardeep Singh Puri held a meeting with top ministry and officials of oil marketing companies in Delhi on Tuesday.

The release of five million barrels of crude oil will happen in parallel and in consultation with other major global energy consumers, including the US, China, Japan and South Korea.

The decision was taken likely after the US reached out to India and other major oil consumers to release their strategic petroleum reserves to temper rallying crude oil prices, two people aware of the development told India Today.

The Petroleum Ministry said that India strongly believes that the pricing of liquid hydrocarbons should be "reasonable, responsible and be determined by market forces".

"India has repeatedly expressed concern at the supply of oil being artificially adjusted below demand levels by oil producing countries, leading to rising prices and negative attendant consequences," the ministry added.

Top sources said that India’s positive response to the strategic multinational move could bring positive dividends in the form of further reduction in fuel prices. The Centre had already slashed petrol and diesel rates by Rs 5 and Rs 10, respectively, on November 3.

However, sources said the reduction may not be long term if the major oil producing nations do not rethink on the rising prices of their crude oil Strategic Petroleum Reserves are built by the government for tackling emergency situations.

Last week, Hardeep Singh Puri had said, "Strategic oil reserves were not intended for a situation like that prevails today. It’s for force majeure situations like natural calamities and outbreak of hostilities or events that lead to shut down of oil facilities."

The Centre’s decision comes ahead of the Assembly elections in multiple states slated for next year.

The US’s request to release strategic reserves came after the Organisation of the Petroleum Exporting Countries (Opec)-plus grouping ignored the pleas by the US and India to boost output to temper prices, which were at a high and hurting economies recovering from the coronavirus pandemic.

The US’s efforts to bring together the big oil consuming nations had an impact during the last few days as crude prices slipped below their seven-year highs of $80 a barrel last week.

The US, China, India, Japan and South Korea are the world’s largest crude oil consuming nations.

In 2020, India bought crude oil at $19 a barrel to build a 5.3 million MT of strategic reserves. This had helped India save over $685 million in its crude bill.

As a safeguard, India has been out to build an additional 6.5 MMT of strategic petroleum reserves while members of the International Energy Agency (IEA) as a practice maintain emergency oil reserves equivalent to at least 90 days of net imports.

Courtesy:India Today