In some countries, transporting petrol may become costlier than petrol itself

With global crude prices falling steadily amid a spurt in production and a simultaneous fall in demand, experts believe that transporting fuels like petrol could become more costly than the product itself.

File photo used for representational purpose. (REUTERS)
File photo used for representational purpose.

A case in point is Canada where, according to a Bloomberg report, prices of heavy crude has become far cheaper than the cost of transporting it to refineries. The report outlined how Western Canadian Select crude in Alberta is down to $5.06 for a barrel which is less than prices of some select coffee drinks at the country's Starbucks outlets. And to transport heavy crude to distant places like Texas costs anywhere between $7 and $9 per barrel.

In the United States, retail gasoline prices fell to below $2 per gallon (1 gallon is 3.78 liters) for the first time since 2016. Reuters reported that the fall in prices come as transit across the country has been halted due to coronavirus and the consequent lockdowns in many parts.

Lockdown has also had a strong effect on refineries in India. Reuters reported on Saturday that two Indian refineries have declared force majeure on crude purchases from the Middle East due to crashing demands in the country. Storage tanks are reportedly full to the brim and there is just no more space for fresh imports. The excise on fuel was increased last week which has resulted in fuel prices being steady here for the moment.

The problem of aplenty, however, may be here to stay.

One of the important points to note here is that demand for jet fuel has come crashing down which has also contributed to crashing crude prices in the international market. Planes are grounded and stored aviation-grade fuel has a far lesser 'shelf life.'

Amid all of this, the production war between Saudi Arabia and Russia has acted as a catalyst in boosting supplies. A supply pact of three years between Organization of the Petroleum Exporting Countries (OPEC) and other producers like Russia fell apart earlier in March after Moscow refused Saudi proposal to cut back on production. Saudi Arabia reacted by promising to take its production to record highs. Excess production and falling demand has had a spiraling effect on oil prices and many believe this is only the start of it all.

First Published Date: 28 Mar 2020, 12:07 PM IST
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