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Day 37 – Q 2. How has the spread of the COVID-19 pandemic affected the supply and distribution of oil resources? Examine. 

  • IASbaba
  • July 22, 2020
  • 0
GS 1, Indian Geography, TLP-UPSC Mains Answer Writing
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2. How has the spread of the COVID-19 pandemic affected the supply and distribution of oil resources? Examine. 

COVID-19 महामारी के प्रसार ने तेल संसाधनों की आपूर्ति और वितरण को कैसे प्रभावित किया है? की जांच करें।

Demand of the question:

It expects students to probe deeper into the effect on supply and distribution chain of oil resources due to COVID-19 and explain it in detail with relevant facts and examples.

Introduction:

On the world scale, global oil demand  shrunk by ~15-20 million barrels for day (mbpd) due to COVID-19 pandemic. India which accounts for, oil imports at 84% and gas imports at 53%, also faced reduction in oil resources demand  nearly by 30% of their respective annual demands. 

Body: 

The impact of COVID-19, whether due to the wide-spread demand destruction, or the downward spiral of crude prices, is of enormous concern for all of the oil resource industry participants. Effect on supply and distribution of oil resources can be observed as follows:

  • In an unprecedented event, oil for the first time in history breached the $0 mark. Hence, cheaper fuel is available to customer in the short run.
  • A condition called ‘Super Contango’ spread its dark clouds over the oil resource industry. A Contango market implies that oil traders believe crude prices will rally in the future. Thus, spot prices are being offered at super discounts to futures prices.
  • One of the major likely impact is the availability of workforce and resources. As due to lockdown, workers numbers are reduced due to transportation constraints and health reasons.
  • The primary reason behind this freefall is the lack of fuel demand across the world followed by a glut in global oil markets leading to an acute dearth of available storage capacities.
  • Like the oil production situation, the major oil refinery companies have not stopped buying oil from oil producing companies, hence production of refined oil posed question of consumption.
  • With no recovery in sight in the foreseeable future, the key issue of oil storage is likely to stay.
  • Keeping track of logistics, containing the oil spillage, and pilferage from the containers are exacerbating the problem in this pandemic. 
  • The downstream supply chain i.e. distribution chain is hard hit due to COVID-19 pandemic. As there is sudden fall of demand and production lines are producing at the same rate before COVID-19 situation, transition market space from supply to demand is creating major bottlenecks in the entire supply demand chain.
  • Once the lockdown is lifted the market will see a sudden rise in demand, which will require robust supply and transportation planning capability, to meet such demands even the supply is overstocked.
  • However, drastic fall in the demand and supply chain of oil has resulted in one positive aspect by helping to reduce the consumption of fossil fuels, in turn helping the environment in the short run.

Necessary steps to reduce the impact:

  • Solutions such as Internet of things enabled remote diagnostics, monitoring tools can be optimally used in the situation. It will reduce dependency on the physical presence of workforce.
  • Emerging technologies can be used to meet the near-term benefits and long-term benefits , such as remote container tracking and health monitoring can provide ready alerts, for oil spillage and pilferage. 
  • Robust fleet management can answer the transportation needs.
  • Digital solutions can be applied to meet the smart demand supply match, to reach to end customers based on the probable demand supply match.

Conclusion:

In the backdrop of COVID, when all hands on decks are needed to tackle the “urgent” task of reviving the economy, the government must not, in the process, lose sight of the “importance” of creating, if nothing else, the mindset of preparedness to respond to “just in case outcomes”.

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