Fall of Crude Oil - Speculation or Actual Fall.?

   US oil prices have turned negative for the first time on Monday due to deepest fall in the demand since last 50 years.

Almost when all Indians woke up on Monday morning, the crude oil prices had already dropped below zero. Core reason beyond the deep fall being excess supply and lower demand for the oil as the consumption got halted due to Covid 19 all over the world.

As per the settlement cycle, the May contract of futures expired on 21st April. The Brent Crude can be delivered on offshore at multiple location as compared to WTI which needs to be delivered physically at Cushing, Oklahoma (US). As the world is running out of space for storage of oil, the outstanding contracts were settled at whatever prices available.

As far as Indian prices are concerned, it imports oil from OPEC countries which are based on International Benchmark(Brent)Crude as compared to U.S. West Texaz Intermediate (WTI) Crude.As. Hence, prices of petrol and diesel in India did not fall even though crude oil trading was in negative.

India has opted to buy Rs. 5000 crore Oil at a price prevailing around $30 per barrel for delivery starting in May and June to fill up Petroleum reserve with a capacity of 5.33 million tonnes created by Indian Petroleum Reserves Ltd.

 

CA Shubham Chhajed