Crude Facts:
1. WTI (Western Texas Intermediate) American Crude Oil. Yesterday, May 2020 contracts of WTI plunged below Zero as physical demand of Crude has dried, creating a global supply glut. This means many American oil-producing companies will witness financial strain in the near term. May 2020 contract has now recovered and trades at $5. It’s June 2020 Contracts Trades at around $10 a Barrel.
2. Indian Basket: Our Import Basket is a mix (weighted Avg.) of Brent crude, Oman & Dubai Crude. Brent Crude has also tanked over 20% today(22nd April) and trades below $ 20 a barrel. In Jan 2020 it hovered around $65-68. Brent Crude & WTI is produced in different oil fields and priced separately.
3. Impact of low crude prices on the US: US markets have tanked in the last 2 days. Low oil prices, & oil companies shutting temporarily will have an economic impact. The US is Majorly Energy Self Reliant.
4. Impact on India: Low Crude prices will bring short-term cheers for India, as we import almost 83% of our energy needs. Our average Crude import price for 2016-17 stood at $47, 2017-18 at $ 56 , Feb 2020- $ 54 & in March 2020 $33.36. Now with Crude plunging lower and the country locked down, it will be massive savings for Govt. Though, Long term low crude prices will have a global economic impact, so we can’t party for long.
5. Will we get cheap fuel now: Probably not much, because.
A. Lockdown has led to large-scale revenue losses for govt. It will try to bridge up its fiscal deficit with this savings on oil Imports. Almost 50% of the Price we pay for fuel goes towards state & central Govt. taxes.
B. Also, WTI May 2020 contracts have crashed below zero, not Brent what we buy, and let’s say if we get oil practically for free we don’t have enough storage capacity, with Lockdown there is no demand for oil & Indian Refiners already have existing stock. Put it this way, had there been demand & usability, WTI wouldn’t have crashed below Zero.
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