US crude oil price sinks to lowest in Covid-19 crisis

The record low US crude oil price in the last 18 years comes in the backdrop of the Donald Trump administration extending the social distancing guidelines. This may put a majority of shale oil producers out of business in the buildup to the US presidential elections in November. India has been sourcing liquefied natural gas (LNG) and crude oil from the US, with Indian companies investing $4 billion in US shale gas assets.

Post the unravelling of the Opec plus arrangement, the West Texas Intermediate (WTI) on Monday was trading at a recent record low of $20.51 per barrel, while the international benchmark Brent traded at $26.86 per barrel, far below the highs of $147 per barrel of July 2008. Goldman Sachs had predicted the crude prices to touch the $20 per barrel mark.

Invoking the force majeure clause enables a company to cite disruption from an unforeseen event—in this case the flu pandemic—to justify not meeting the contractual obligations. India is the world’s third-largest crude oil buyer and the fourth-largest liquefied natural gas importer.

Every dollar per barrel drop in crude prices reduces India’s oil import bill by ₹10,700 crore on an annualized basis. Retail prices of petrol and diesel in India track global prices, not crude, but are broadly linked to crude oil price trends.

Despite pressures from the Donald Trump administration to reach a compromise with Russia, Saudi Arabia continues with its surplus production targets. This doesn’t bear good tidings for US shale oil business as Saudi Arabia has the lowest cost of production at around $3-5 per barrel. Russia also has a cushion given that its on shore production costs are around $16-18 per barrel. In comparison, a typical US shale well requires oil to be at $68 to post returns.