NEW DELHI, JAN 8: While India stands to save anywhere between $300 and $350 million in the next three months if global crude prices continue to remain at their current lows, analysts feel India may not be able to take too much advantage of the favourable prices. Crude prices, which have crashed by over a fourth over the last couple of months, are currently ruling at the lowest level in the last three years.While most global oil majors are rushing to buy huge quantities of oil on the `spot' and `forward' markets, India is not in a position to do likewise. While `forward' trading is not allowed in crude oil, it can not buy large enough additional quantities of crude in the `spot' market as it does not have adequate storage facilities in the country - nor can the antiquated ports handle significantly larger import quantities. Says an Indian Oil Corporation (IOC) official : "We can flood the country with cheap oil, but where are the facilities to unload it?". IOC is the canalising agency through which importstake place.Indian ports, for example, are so congested that the country pays over a thousand crore rupees each year just in the form of demurrage to shipping companies whose ships are forced to remain berthed for days on end. Nor does the country have any very large crude carriers (VLCC) or ultra-large crude carriers (ULCC) which can be used to store crude on the seas - several OECD countries, for example, keep floating inventories of crude in this fashion.Interestingly enough, despite the general rule that oil companies should stock 30 days requirements of oil products and 45 days of crude oil, several companies are operating at inventory levels of just around a week.Oil sector analysts believe, however, that the biggest factor that will prevent India from benefitting from the oil crash will be the absence of `forward' trading, or hedging facilities.`Forward' contracts essentially imply buying or selling a commodity at a pre-determined price but the physical delivery is given at some time in the future. In a situation where prices have fallen dramatically and may still fall a bit further, it would make sense, for example, to buy futures for oil. If crude prices rise after a few months, then delivery can be taken. If, however, they fall, the futures can be sold and crude can be bought on a `spot' basis. The government, however, does not allow `futures' trade in oil, though all big oil companies such as Shell are very big players in the futures markets.Oil prices have been dipping since October but began falling in a big way since December when the OPEC announced a ten per cent hike in quotas - Iraq is also all set to resume oil exports under the UN's food-for-oil program. The delay in the onset of winter in the northern hemisphere is also one of the reasons for the fall, since oil demand for heating purposes is yet to pick up in a significant manner.
