India to Release 5 Million Barrels of Oil From SPR

On 23 November, the Indian government announced that it would release nearly 5 million barrels of oil from its Strategic Petroleum Reserve (SPR). The decision has an interesting background.

Just a couple of days earlier, Joe Biden had announced that the US would release 50 million barrels of oil from its SPR. This was after the OPEC refused to increase output of crude despite repeated requests from the US and other major oil consumers.

While announcing the release of 50 million barrels from the SPR, the US had also sought the support of other major oil consumers and importers in the world including India, Japan and South Korea.

India’s decision to release the 5 million barrels of oil was in response to this request from the US. While the intent was to check the rise in oil prices, Brent Crude has gone up from $78.8/bbl to $82.5/bbl in the last 3 trading sessions.

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India seriously started building its SPR only from 2016 onwards and it has currently built an SPR of 39.14 million barrels. This includes 9.77 million barrels in the Visakhapatnam storage, 11 million barrels in the Mangalore storage and 18.37 million barrels at the Padur storage.

This release of SPR will be directly sold to HPCL and MRPL which will reduce the oil imports to that extent. India accumulated reserves during the oil cycle low in Apr-20 and May-20.

Analysts are of the view that this 50 million dollar SPR release by the US, even if combined with India, Japan and Korea, would be too small. The total daily oil consumption is currently close to 100 million barrels, so the SPR release would get absorbed in just a few days.

Oil analysts were looking at a much larger release from the US. However, with the US holding about 740 million barrels of oil, it may not be keen to cross the 10% mark for releasing at this juncture.

India’s participation in this exercise is understandable. It relies on oil imports for 80-85% of its oil needs. It is estimated that every $10 rise in oil prices spikes the current account deficit by 0.5%.

With a steep excise and VAT structure in India, the impact of any rise in crude prices tends to hit inflation hard. If the SPR oil release can help sober down the oil prices, Indian economy would be a big beneficiary.

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