Julian Lee writes: The “Corona” crisis in India threatens a recovery in oil prices

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India, the third largest consumer of oil in the world after the United States and China, was supposed to be a major engine for the recovery of oil demand with the reopening of economies, but the devastating health crisis in the country made this impossible, and everyone from oil traders to the largest producers in the world is feeling Panicked.

The Indian Prime Minister, Narendra Modi, is facing increasing criticism due to the increase in the number of cases of the Coronavirus, which began shortly after his government announced that the country was “at the end of the game of the Covid-19 pandemic”, allowed large election rallies and gave the green light to the “Kumbh Mela” celebrations. Religious, which attracted about 3.5 million worshipers.

And as my colleague, David Fekling, wrote in an article on “Bloomberg”, the current situation in India means that Covid may kill more Prime Time Zone in 2021 than last year, and the number of deaths due to the epidemic in the country is likely to be several times higher than what you indicate. Mechanism of official figures.

The record number of new cases of “Coronavirus” in India is a human tragedy, and it has serious repercussions on the global oil sector.

India was one of the bright spots in the growth of oil demand alongside China, as the epidemic appears to have been controlled, and the United States and Britain, where widespread vaccination allowed the resumption of economic activity and leisure travel, albeit slowly, and the demand for oil was expected to be in the region. The world’s third largest oil market is above or near pre-epidemic levels this year, and that forecast is sure to be revised downwards now.

My fellow Bloomberg News, Deepgate Chakraborty and Saket Sondria, reported that combined diesel and gasoline consumption in India this month could drop by up to 20% compared to March levels as streets in major cities like New Delhi and Mumbai became eerily quiet.

The stay-at-home warnings are likely to affect car fuel consumption, which has so far been supported by a massive shift from public transportation to private cars and motorcycles, and the restrictions have also affected truck and bus transportation, cutting their businesses in half, according to the union. Trucking.

It is expected that the refineries will reduce their operations in response to the shrinking demand, which leads to the accumulation of crude stocks, which will affect future purchases even after the improvement of the situation, and it is almost certain that the purchases of crude oil by Indian refiners will decrease if the outbreak and associated restrictions continue.

The impact will not be limited to the South Asian country, but countries ranging from Britain to Canada have begun to ban air travel from India, and this will affect the international demand for jet fuel, which is still suffering.

Concern also began to seep into the largest oil producers in the world, and the “OPEC Plus” group, which includes countries such as Saudi Arabia, Iraq, the Emirates and Russia, was relying on increased demand to support crude oil prices and ease record production cuts, and it may now have to reconsider.

The ministers are scheduled to hold their next monthly meeting later this week, and when they met at the beginning of the month, they agreed on a timetable for easing some production cuts in May, June and July, and now they may have to review these plans before they take effect.

The group had intended to add 2.14 million barrels per day to global supplies between May and July, and was considering reducing the next meeting to only one technical session to monitor members’ progress, but this may not be possible any longer.

Producers in the Middle East may be the most vulnerable, as it takes five to six days to ship crude oil from the Persian Gulf to India, compared to five to six weeks to ship from the Gulf of Mexico, and India’s decision to stop purchases from American producers will not be tangible in the low volumes that reach To its storage tanks until June, but if it takes a similar decision regarding supplies to the Middle East, it can be felt before the end of April.

India was already looking for alternatives to Saudi crude after relations became sour due to prices, and the collapse in demand will speed up this process.

After delaying the easing of production cuts that were scheduled in January, the “OPEC Plus” group had hoped that things would get back on track by July, but the recession in Indian demand for oil would make this more difficult, forcing them either to delay opening the taps again or The risk of weakening crude prices, and none of them wanted that.

Written by: Julian Lee, Petroleum Strategist at Bloomberg News
Source: Bloomberg News

The article, Julian Lee, writes: The “Corona” crisis in India threatens a recovery in oil prices. It was written in the Stock Exchange newspaper.