Brent price touch $40 per barrel mark again after Black April
NEW DELHI : With the world slowly opening up for business, oil prices are up again after Black April, when the demand had almost vanished with most of the world under coronavirus lockdowns.
The international benchmark Brent crude oil was trading at $39.95 per barrel on Wednesday (at the time of filing this story). The West Texas Intermediate (WTI) prices has also been up and was trading at $36.63 per barrel.
This comes in the backdrop of Brent crude hitting a 21-year low, and US oil futures slumping into negative for the first time in history. The glut in oil overwhelmed the world’s limited storage facilities, triggering a wave of selling by oil traders in April.
The prices have been up supported by gradual recovery in fuel demand as reopening of the global economy gathers pace.
“Dated Brent Prices may find some pockets of support in June in the range of $35-40/bbl as supply shut ins peak, demand recovers, and OPEC+ maintains discipline at their June 10 meeting," S&P Global Platts Analytics wrote in a report.
The cost of the Indian basket of crude, which comprises Oman, Dubai, and Brent crude, averaged $56.43 and $69.88 per barrel in FY18 and FY19, respectively and $19.90 in April, according to data from the Petroleum Planning and Analysis Cell. The price was $38.66 a barrel on 2 June.
India’s largest refiner, Indian Oil Corp. Ltd (IOC) has said that the demand for petroleum products is picking up, with the country slowing opening up for business.
Energy consumption, especially electricity and refinery products, is typically linked to overall demand in an economy. This also comes at a time of India’s power demand that had nosedived during the lockdown, slowly getting back to its pre-lockdown levels, Mint reported.
“Asia has also been hit hard by the economic slump despite the opportunity to be first in line to recover from the covid-19 pandemic among all major regions around the world. India in particular saw the worst year on year demand destruction in history last month, bringing Asia’s April demand down by 5 million b/d year on year together with demand destruction in Southeast Asia, before it improved in May," the report added.
To strike a balance between combating the virus and limiting economic damage from one of the world’s longest community shutdowns, India looking at replenishing demand to help revive economy. It has set in motion efforts to replace the demand that was lost after the economy went into a hard lockdown—which is now being gradually withdrawn.
India has also raised domestic cooking gas price for June. While refiners had slashed production due to reduced demand for transportation fuels, there has been an increase in demand for domestic cooking gas.
India is the world’s third-largest oil importer. Every dollar drop in the price of oil decreases the import bill by ?10,700 crore on an annualized basis. India spent $111.9 billion on oil imports in 2018-19 and is a key Asian refining hub, with an installed capacity of more than 249.4 million tonnes per annum (mtpa) through 23 refineries.
“However, risks of 2nd wave hits of Covid-19 globally have also increased. It is particularly challenging for Latin America, the Middle East and Africa, and to a lesser extent South Asia," S&P report added.