INDIA: The Indian government announced that India will release five million barrels of crude oil from its emergency reserve along with the United States, China, Japan, South Korea, and the United Kingdom to help control international oil prices. The collective decision marks a diplomatic victory for the United States and a challenge to the persistent control that Saudi Arabia, Russia and other OPEC producers have in the market. OPEC+ will meet again on December 2 to discuss energy policies.
India’s response to the energy crisis
India is the third largest oil consuming and importing country in the world and has been severely affected by the relentless rise in international oil prices. This has led to a significant increase in the inflation rate in India, prompting a widespread outcry.
The stocks will be sold to refineries of Mangalore Refinery and Petrochemicals Ltd (MRPL, a subsidiary of Oil and Natural Gas Corporation Limited) and Hindustan Petroleum Corp Ltd (HPCL), which are connected by pipeline to the strategic reserves. The UAE Abu Dhabi National Oil Company (ADNOC), has leased half of the Mangalore storage, while the remaining is with state-owned MRPL.
Oil Minister Hardeep Singh Puri last week in Dubai had said high prices will undermine the global economic recovery.
This is the first time that India has released shares to cool prices. India has stored 5,33 million tonnes or about 38 million barrels of crude oil in underground caverns at three locations on the east and west coasts:
- 1,33 million tons of storage in Visakhapatnam in Andhra Pradesh,
- 1,5 million tons of crude oil reserves in Mangaluru, Karnataka, and
- 2,5 million tons of crude oil reserves in Podur, Karnataka.
The movement is not without its obstacles as it will cost Rs 60 billion of revenue. Recently, the Indian government cut retail prices for both gasoline and diesel after a series of price hikes. OPEC + officials have warned that they will likely be corrected by abolishing plans to boost production, thus neutralizing the release of stored oil on the market. The confrontation has set the stage for a desperate struggle for control of the global energy market.
While the Indian government’s statement did not give the exact date of publication, an official with knowledge of the matter said the shares could be published in between seven to ten days.
The publication could influence domestic prices. Indian Oil Minister Hardeep Singh Puri said in Dubai last week that high prices will undermine the global economic recovery. Giving the rationale for his decision, the Oil Ministry said India firmly believes that the price of crude should be “reasonable, responsible and determined by market forces.”
Global energy crisis 2021
Since July 2021, OPEC+, the Organization of the Petroleum Exporting Countries and allies, including Russia, have been adding about 400,000 barrels a day to the market every month. Nonetheless, experts say it is not enough to cool prices that have been rising as demand returns to pre-pandemic levels. Brent crude is trading at $ 79.24 a barrel. On October 26 it was $ 86.40 a barrel. A global strike of about 50% in prices is more than expected along with possible supply disruptions, India being hit by a 60% over-price already.
Under the current pact on oil, the United States will release 50 million barrels of its strategic reserves. Supply chain in Britain is disrupted particularly due to the panic buying of fuel after Brexit and the new relations with the EU, the second importer of crude oil in the world as a “community.”
The energy crisis in China caused power outages in many factories. While China has accordingly agreed to release oil from its reserves, the terms of their cooperation have yet to be confirmed, as China says they will release oil according to their needs. This comes in response to the unaltered and rather hostile policies that the United States has been applying to both Russia and China for some time now, ignoring evident need for diplomatic solutions on energy, economic, and environmental matters.
On the same note, Japan has also signalled their readiness to provide relief to its citizens.
Independent energy watchdog response
In the past, multi-country releases from reserves have been coordinated by the International Energy Agency (IEA), a Paris-based watchdog. The IEA does not intervene to influence prices, but the head of the agency said Wednesday some producers have been restricting supply too much.
“Some of the key strains in today’s markets may be considered artificial tightness … because in oil markets today we see close to 6 million barrels per day in spare production capacity lies with the key producers, OPEC+ countries,” said Fatih Birol, IEA head.