India and the US on July 17 signed a preliminary agreement for cooperating on emergency crude oil reserves, including the possibility of India storing oil in the US emergency stockpile. Given this, India plans to store its crude oil in US strategic petroleum reserves for use not just during emergencies but also for trading to capture any price advantage, officials said.
"It is a good concept but comes with many riders," a senior government official said. For one, India will have to pay a rental for hiring the storage in the US. This rental will be on top of the international oil price. "The alternative is to build our strategic reserves, which will involve huge capital costs and take a few years to construct. So the rental is a small fee to pay to get immediate access to a strategic reserve," the official said.
More importantly, storing large volumes involves paying upfront on the purchase of crude oil, and companies will have to block so much capital. India had begun exploring the possibility of storing oil in the US a few months back but couldn't make much headway as COVID-19 pummelled demand, leading to excess oil around the globe that filled every inch of storage, including those on ships.