OPINION PIECE

Current transportation fuel demand at 30%-40% of normal: R Ramachandran, director, refineries at BPCL

Oil industry experts expect crude price to remain low with appropriate discounts available to buyers. Typically, crudes which were available at a premium to the benchmarks are now available at discounts of $3 to $5 per barrel, said R Ramachandran, director, refineries at Bharat Petroleum (BPCL), in an interview with Vikas Srivastava.

With the OPEC+ countries taking a 9.7 million barrel supply cut, what can be the impact on crude prices and Indian refiners going ahead, in terms of fresh term contracts?

While the cuts announced by OPEC+ will improve the balance between the supply and demand, the surpluses existing world over, including the Indian markets, coupled with the lockdown worldwide, is expected to keep crude prices low in the short term. Indian refineries have term contracts with all the major national oil suppliers in the Middle East for this year. Typically, 60-80% of our imported crude requirement is tied up in term contracts.

Are the discounts offered by suppliers going to reduce following the cuts announced by OPEC+?

Oil industry experts predict the prices to remain low with appropriate discounts as it is visible in the markets projection of a contango situation in crude oil pricing. (Contango pricing is a situation where the future prices are projected higher than the current, allowing for purchases to be made now for a future sale at higher prices). The discounts over the benchmark prices vary from crude to crude. Typically crudes which used to be available at a premium to the benchmarks are now available at discounts of $3 to $5 per barrel.

Since the cut will be implemented from May 1, can we expect the price fall to stabilise and countries to create strategic reserves in the interim?

Lower prices will lead to major oil consumers trying to fill up their strategic reserves. India is also filling up its strategic crude caverns at Vizag, Mangalore and Padur with oil from Saudi Arabia and Abu Dhabi.

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