Crude oil hits 4-month low. Will petrol and diesel prices fall?

Crude oil prices fell to a near four-month low as Middle East tensions eased and supply prospects improved. The drop may help India's import bill, but petrol and diesel prices are unlikely to fall immediately.

In Short

• Crude oil prices hit 4-month low amid easing Middle East tensions
• Brent at $76.54 and WTI at $72.69 per barrel as supply fears ease
• Global demand forecast downgraded, supply recovery ongoing

Crude oil prices have slipped to their lowest levels in nearly four months as easing tensions in the Middle East and expectations of higher oil supplies continue to weigh on the market.

As of 8 am on Wednesday, Brent crude was trading at $76.54 per barrel, while US West Texas Intermediate (WTI) crude stood at $72.69 per barrel, extending losses seen over the past two sessions.

The sharp decline comes after crude prices briefly surged earlier this month amid fears that the conflict involving Iran could disrupt oil shipments through the Strait of Hormuz, one of the world's most important energy chokepoints. Those concerns have now eased considerably, pulling oil prices lower.

WHY ARE OIL PRICES FALLING?

The biggest reason is the gradual return of oil supplies to the global market.

More oil tankers that had been stranded in the Gulf during the Iran conflict are now preparing to move through the Strait of Hormuz. The market has also been pressured by a US decision to grant Iran a 60-day sanctions waiver, allowing the country to continue selling crude oil.

Adding to the relief, Oman and Iran have agreed to continue discussions on navigation through the Strait of Hormuz, easing fears of a prolonged disruption to global energy supplies.

Kaynat Chainwala, AVP - Commodity Research at Kotak Securities, said diplomatic progress between the US and Iran has significantly reduced the geopolitical premium that had supported crude prices for months.

"Brent and WTI futures slipped below $77 per barrel and $73 per barrel respectively, extending sharp losses as diplomatic progress on the US-Iran front continued to erode the geopolitical risk premium that had underpinned prices for months," she said.

According to Chainwala, a US Treasury authorisation allowing Iranian crude and petroleum product sales for a 60-day period has strengthened expectations of a near-term recovery in global supplies.

She pointed out that tanker tracking data showed more than 30 million barrels of crude headed towards Asia over the past week, including cargoes that had previously been blocked as well as fresh exports from Iran.

"Iran has been aggressively discounting crude to Asian buyers and Gulf producers have resumed operations at key facilities. If Hormuz flows continue to normalise, a substantial volume of deferred barrels could quickly reach the market, limiting any significant recovery in oil prices unless demand improves," she added.

CAN CRUDE FALL FURTHER?

Several indicators suggest the downside risk remains intact.

Research by Motilal Oswal Wealth Management shows that global demand expectations have weakened, with both the International Energy Agency (IEA) and OPEC lowering their demand growth forecasts for 2026.

At the same time, Gulf export flows are recovering faster than expected and supply disruptions are gradually unwinding.

The brokerage noted that while inventories remain tight for now, the market could move into a supply surplus by 2027 if shipping routes remain fully operational and production rises as expected.

"OPEC+ is sitting well below its supply target because exports were curtailed and storage was full during the closure. This creates significant upside supply risk once export and shipping constraints ease," the note said.

WHAT COULD STOP THE FALL?

Despite the bearish outlook, experts caution against assuming that oil prices will continue falling in a straight line.

The Strait of Hormuz remains a sensitive region, and any fresh geopolitical tensions could quickly push prices higher again.

Motilal Oswal noted that political risks remain elevated because past US-Iran agreements have often proved fragile. Any breakdown in talks could reverse the recent normalisation in oil markets.

The brokerage expects crude to remain volatile, with tight inventories supporting prices even as weaker demand limits gains.

WHAT DOES CRUDE OIL FALL MEAN FOR INDIA?

Lower crude prices are generally positive for India, which imports more than 85% of its oil requirements.

Cheaper oil helps reduce the country's import bill, supports the rupee and eases inflationary pressures.

However, consumers hoping for an immediate cut in petrol and diesel prices may have to wait. Fuel prices in India are influenced by a combination of crude oil prices, taxes, refining margins and marketing costs.

For now, the key question for markets is whether the Strait of Hormuz continues to normalise. If more Iranian and Gulf crude reaches the market in the coming weeks and global demand remains soft, analysts believe oil prices could stay under pressure and potentially test lower levels.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)

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