An Indian official has recently told that India plans to store its crude oil in the United States’ strategic petroleum reserve, not only for just emergency use but also for trading to capture price advantages
For hiring the storage in the US, India will have to pay a rental which will be additional to the international price for oil. The mentioned strategic petroleum reserves in the United States are operated by private companies, in which the stored oil can be used for the country’s own needs or can also be traded to capture a price advantage. The official said that these two scenarios operate when India has bought and stored oil in the US Reserves and subsequently the prices have increased. He added that in case the prices fall, losses will result.
Further, as it takes about a month’s time to ship oil from the United States, in case of obstruction of sea route, having the stock file in the United States will be of no use to India’s energy security as such stock will be inaccessible. Moreover storing large volumes will block a large amount of capital owing to the upfront payment in purchasing crude oil.
A memorandum of understanding (MoU) was a signed between India and the United States, on July 17th, which allowed the latter to begin sharing the know-how about establishing a strategic petroleum reserve. This pact also enabled India to explore the possibility of storing its oil in United States, in underground caverns located in Louisiana and Texas. Whereas the United States has the strategic petroleum reserve capacity of 714 million barrels of oil, India stores only about 38 million barrels of crude oil in underground storages at 3 locations, which is less than what is required to meet the nations’ 10 days’ needs.