As crude oil prices slipped into a free fall with the US futures' market recording negative prices for the first time, India is closely looking at the opportunity for a good bargain to fill in its strategic crude oil reserves.

Strategic crude oil reserves allow a country to tide over short-term supply disruptions.

On Monday (April 20), US crude oil rates plunged below the USD 0 mark into negative territory for the first time in history.

May U.S. West Texas Intermediate (WTI) crude futures plunged to minus USD 37.63 a barrel, a fall or more than 305 percent, pummeled by plunging demand as a the Coronavirus pandemic continue to force most countries into nationwide lockdowns for an indeterminate period.

This may well be the opportune time to buy from spot crude oil market and top up India’s existing strategic petroleum reserves (SPRs).

Two years ago, in June 2018, the Narendra Modi government approved a plan to build two new caves of SPRs which, when complete and tanked up, will create additional capacity to maintain supplies for up to 11.5 days’ oil needs in an emergency.

This will raise India’s crude oil storage capacity to equivalent of 87 days of demand by 2020, which include 67 days’ worth of commercial stocks held by refineries (apart from the armed forces’ stocks).

One of the new caves is being built at Chandikhol, in Odisha, to store up to 4.4 million tonnes of crude oil; the other will be a 2.5-million tonne facility at Padur, Karnataka.

This is besides the three SPRs India already has in Visakhapatnam, Mangaluru and Padur. The Visakhapatnam and Mangauluru facilities have been built to meet roughly 2.5 days of requirement each while Padur can meet 4.5 days’ of oil needs.

These facilities can store up to 1.33 million tonnes, 1.5 million tonnes (Manguluru) and 2.5 million tonnes (Padur).

The Cabinet’s decision in June 2018 to build new SPR caverns came exactly 45 days after a container ship carrying the first consignment of 2 million barrels of crude oil set sail from the United Arab Emirates (UAE) for the Mangaluru SPR.

Abu Dhabi National Oil Company (ADNOC) has tied up with state-owned Indian Strategic Petroleum Reserves Limited (ISPRL) to store around 5.86 million barrels of crude oil in at the Mangaluru SPR at its own cost.

This agreement was signed during Modi’s visit to the UAE in February 2018. In November 2018, ADNOC signed another agreement with ISPRL to store oil in half of the Padur strategic oil reserve site.

The agreement allows ADNOC to sell oil to local refiners but give the government of India the first right to the oil in the case of an emergency.

India, on its part, will save on costs for importing crude to store while retaining the first right of access in an emergency. In November 2018, the government had approved a plan allowing foreign oil companies to store oil in Padur’s strategic storage, which it estimates will help cut costs by Rs 10,000 crore.

India is a relatively recent entrant to the club building its oil stocks to deal with potential fuel supply disruptions and price shocks.

India first decided to construct SPRs in 2004 as part of a broader strategy to deal with growing demand, stagnating domestic production, soaring global crude costs and dependence on the unsteady West Asian region for imports.

India is set to overtake China as the biggest source of growth for oil demand by 2024. India's expanding middle class will be a key factor, as well as its growing need for mobility.