Oil prices crawl up on demand recovery, tempered by virus outbreaks

Marco Green
June 28, 2020

Urals, a blend of heavy sour oil from the Urals mountains and Volga river region and light oil from Western Siberian fields, has traded at a hefty premium of more than $2 per barrel to dated Brent - a global benchmark - since April, up from a discount of around $4 per barrel.

The country's oil import spending declined to just $ 2.3 billion in May, from $ 9.5 billion in May previous year. In fact, India's crude oil import in May fell 22.6 per cent to 14.6 MT, the biggest single month drop since 2005, as both fuel demand and refinery production was hit by Covid-19 disruptions.

The new benchmarks will seek to put U.S. oil for export on a more equal footing with Brent crude, which is now used for the pricing of more than 50 percent of the oil exported around the world. Gasoline production last week averaged 8.8 million barrels daily, up from 8.4 million barrels daily a week earlier.

"Crude oil price realisation during Q4 (January-March) of FY20 and FY 2019-20 got adversely affected due to fall in worldwide crude oil prices because of Covid-19 and collapse in understanding between OPEC and Russian Federation on continued production cuts", it said. Already taxes on petroleum products have been jacked up to mobilise additional resources for these unplanned expenditures.

Before the renewed outbreak in Beijing that has now spread to neighboring provinces, buyers in China were snapping up cheap US oil with crude processing at local refineries climbing even higher last month than before the pandemic began. On the production sector, crude oil production by OIL in 2019-20 is 3.134 MMT, which is 5.69% lower than the crude oil production of 3.323 MMT during 2018-19. Hundreds of oil tankers were seen reaching China's coast this month with many taking longer than normal to unload amid limited onshore storage space. However, in May previous year, crude prices were slightly above $ 70 per barrel.

The dependency of imported crude (on consumption basis), on the other hand, has increased from 82.9 per cent in FY18 to 83.7 per cent in FY19 and 85 per cent in FY20, meaning the country is producing less oil and depending more on imports to meet domestic requirements. Despite best efforts of the government, domestic oil production has not increased.

Other reports by Click Lancashire

Discuss This Article