Govt holds back $600 million plan to replenish strategic oil reserves

By Rakesh Sharma and Ruchi Bhatia

India’s finance ministry has scrapped a 50 billion rupee ($602 million) plan to top up the nation’s strategic crude oil reserves, given market volatility and the prospect of a further decline in prices.

Instead of buying at current levels — Brent crude has already slumped about a fifth from a September peak, and could fall further if supply remains plentiful — the ministry is asking state-owned Indian Strategic Petroleum Reserves Ltd. to lease out empty underground storage to refiners and global oil majors, according to people familiar with the matter. They asked not be named as the discussions aren’t public.

An oil ministry spokesperson didn’t immediately reply to text messages seeking comment, while a finance ministry spokesperson didn’t respond to an email seeking comment.

India has limited oil storage capacity, with space for only 39 million barrels of crude — barely enough for eight days of the country’s consumption — to use in the event of an emergency. It filled the storage in 2020, when Brent crude prices crashed, but has since released about a third of that oil to local refiners.

The ministry’s decision not to refill its reserves, at odds with other large consumers, comes as New Delhi seeks to lower its fiscal deficit to 5.9% of its gross domestic product in the fiscal year to March, from 6.4% a year earlier. It has instead sought to lease out space, but refiners have expressed limited appetite so far. 

That could mean the underground storage caverns remain empty unless market conditions turn, the people said.

The South Asian nation keeps its strategic oil stockpiles at three sites. A combined 13.5 million barrels of storage space at Visakhapatnam and Mangalore are currently empty, the people said. 

One of the two 5.5 million-barrel caverns at the Mangalore site has been leased to Abu Dhabi National Oil Co. The finance ministry has asked ISPRL to discuss the lease of the second unit with local refiners and Adnoc.