The announcement last week by big oil consumer countries including the US, Japan and India to release crude oil from their Strategic Petroleum Reserves (SPR) failed to trigger the expected immediate effect of bringing down fuel prices, instead driving them higher, but news of the new variant of COVID-19 discovered in South Africa served to achieve this objective.
The purpose was to cut the cost of growing fuel prices in the international market, which touched a new high in 2021. The decision was welcomed by the international community but the moot question was whether it would serve the purpose of cooling down the oil price. Let’s find out the implications.
What is the Strategic Petroleum Reserve?
Strategic Petroleum Reserves are stockpiles of crude oil, held by the government of a particular country or a private industry, to use in case of any crisis or emergency. Right now, India has three strategic petroleum reserves with a combined storage capacity of 5.33 million tonnes (about 38 million barrels). These are located in Visakhapatnam (1.33 million tonnes), Mangalore (1.5 million tonnes) and Padur (2.5 million tonnes).
According to the government, these are sufficient to meet the country’s reserve for about 9.5 days. As per reports, Strategic Petroleum Reserve Limited filled the reserves in 2020 when the Covid-19 pandemic hit global economies and fuel demand plummeted, leading to international oil prices crashing below $20 per barrel on April 21, 2020.
How did the prices shoot up?
An oil price war between Russia and Saudi Arabia erupted in March when the two nations failed to reach a consensus on oil production levels.