Indian crude oil basket follows global trajectory, falls to record low

The Indian crude oil basket represents is derived from sour grade (Oman and Dubai average) and sweet grade (Brent) of crude oil processed in Indian refineries in the ratio of 75.50 : 24.50
Following the global oil trajectory, the benchmark Indian crude oil price dropped to a record low of $16.38 a barrel on Tuesday.

Brent crude prices touched $15.98 a barrel, its lowest since June 1999. It later recovered to slightly over $20 a barrel in early Wednesday trade. Meanwhile, West Texas Intermediate (WTI) crude was seen at $13.69 a barrel at one point, recovering from the bloodbath early this week.

According to the Petroleum Planning and Analysis Cell (PPAC), the March average of Indian Basket price was the lowest in the last 15 years at $33.36 a barrel last month. The lowest monthly average since April 2000, from when data is available, was $18.24 a barrel in November 2001.

The Indian crude oil basket is derived from sour grade (Oman and Dubai average) and sweet grade (Brent) of crude oil processed at Indian refineries in the ratio of 75.50:24.50. It is used for the purpose of macro-economic calculations as petroleum product prices are linked to their own market.

“We are linked to multiple crude types. Global crude price recovery is expected to be gradual, I don’t think we will be going back to the 2019 level in the near term,” said Anirban Mukherjee, partner and director, Boston Consulting Group (BCG).

Mukherjee added that though internationally a production cut was announced by Organization of the Petroleum Exporting Countries (Opec) and other producers of around 10 million barrels a day, that might not be enough to address the demand decline of around 25-30 million barrels per day.

Financial year 2019-20 (FY20) started with the Indian Basket at $71 a barrel in April but it dropped 53 per cent to $33.36 in March. Earlier this week, WTI May futures trade plummeted to negative territory of -$37.6 a barrel. This means some sellers were paying buyers to take the oil off their hands for May contract that was due to expire.
“In a normal market, contracts typically roll over and are rarely settled physically, but in this environment there is limited storage capacity so there is a mismatch between the ‘paper’ market and the ‘physical’ market. Once the May contract rolls off, the June contract becomes the front month contract that is the most widely quoted.

June is (trading at) $21 and July is $27, which shows that the May contract is the anomaly,” said Steve Wood, managing director, Corporate Finance, Moody’s Investors Service.

A YES Securities report hinted at a recovery in the second half of the year taking prices towards $35-45 a barrel, if the world gets out of the impact of Covid-19. 

“We remain bearish on oil as demand side shocks (more than Saudi-Russia price war) will result in a huge surplus particularly in the first half of this year. Brent Oil is projected to be in the wide range of $10-25 a barrel in the near term given the heightened volatility in financial markets,” said Hitesh Jain, lead analyst — Institutional Equities, YES Securities.

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