Why is India releasing 5 million barrels of crude oil from its strategic reserves? - Explained

For the first time ever, India plans to release about 5 million barrels of crude oil from its Strategic Petroleum Reserves ‘in parallel and in consultation with’ the US, China, Japan and South Korea to bring down global crude oil prices, said the Oil Ministry. The US will release 50 million barrels of crude oil from its reserve. This is the first of its kind coordinated release of crude oil from strategic reserves globally. The development comes in with the US to bring down global crude oil prices which crossed $85 per barrel in October 2021.

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Why is India releasing 5 million barrels of crude oil along with US, China, Japan, South Korea?

The global call by India and other major consumers to release crude oil from their strategic reserves came after the Organization of the Petroleum Exporting Countries and its allies including Russia did not pay attention to India’s plea for normalizing crude oil output. OPEC provides a majority of India’s crude oil imports. Even the US was unsuccessful at persuading OPEC+ to produce more oil. Following this, US President Joe Biden called on India, China, Britain, South Korea, and Japan for a coordinated release of crude oil stocks from their respective Strategic Oil Reserves.

OPEC+ countries have been adding 4,00,000 barrels of crude oil on a monthly basis to the market but it has not been sufficient to bring down prices as demand returns to pre-pandemic levels. OPEC+ countries are scheduled to meet on December 2 to take a call on raising or maintaining production levels.

The Oil Ministry added that India firmly believes in keeping reasonable pricing of liquid hydrocarbons which is determined by market forces. India has been repeatedly expressing concern over the supply of oil being artificially adjusted below demand levels of oil-producing countries which is leading to rising prices and negative consequences. High crude oil prices are starting to add to unwanted inflation and slow down recovery from the pandemic.

Rising prices of crude oil cause record high petrol and diesel prices in India

In 2020, India witnessed record high petrol and diesel prices due to almost 60 per cent rise in the prices of crude oil. On November 3, 2021, the Finance Minister lowered the excise duty on petrol by Rs 5 per litre and on diesel by Rs 10 per litre. The State governments across India also lowered the value-added tax on auto fuels. Since November 4, petrol is being sold at Rs 104 per litre and diesel is being sold at Rs 86.7 per litre in Delhi. The prices of petrol has gone up by 28 per cent and diesel has gone up by 22 per cent.

Who will get India’s 5 million barrels of crude oil?

The 5 million barrels of crude oil will be released in the next 7 to 10 days to state-run refiners Hindustan Petroleum Corporation Limited (HPCL) in Vishakhapatnam and Mangalore Refinery and Petrochemicals Limited (MRPL) in Mangaluru. Both HPCL and MRPL are subsidiaries of Oil and Natural Gas Corporation (ONGC). Both these state-run refiners have pipeline connectivity to the Strategic Petroleum Reserves.

India’s Strategic Oil Reserves - Background

India's planned release of 5 million barrels of crude oil is equivalent to the amount of oil consumption by the country. India has Strategic Oil Reserves of 5.33 million tonnes (MT) of crude oil which is about 38 million barrels. These Strategic Oil Reserves are located across three places in India namely Vishakhapatnam, Mangaluru, and Padur.

The storage capacity of the Strategic Oil Reserves at Vishakhapatnam is 1.33 MT (9.77 million barrels), Mangaluru is 1.5 MT (11 million barrels), and Padur is 2.5 MT (18.37 million barrels). These three Strategic Oil Reserves in India can meet upto 9 to 10 days of India’s crude oil demand. The combined cost of these three Reserves is Rs 4,098.35 crores.

Apart from this, India imports about 226 MT of crude oil every year to meet around 85 per cent of the domestic demand. India is world’s 3^rd biggest oil importer.