Trade war, Saudi quest to protect market share have oil prices spiralling; India not complaining

Consequently, oil prices hit their lowest in over 4 years with the benchmark Brent crude briefly even slipping beneath $60 per barrel earlier this week. One other benchmark—West Texas Intermediate, or WTI—which often trades at a reduction to Brent, slid even decrease.

Whereas there was some minor restoration in prices since, the overall sentiment across the so-called black gold stays bearish due to rising fears of a attainable recession and growing oil provide by Riyadh-led OPEC and its allies, or OPEC+. For example, Goldman Sachs slashed its oil value forecast for 2026 twice in lower than per week, pegging Brent at $58 per barrel subsequent 12 months. Brent had largely traded between $70 and $90 per barrel for the previous two-and-a-half years.

Notably for India, the stoop in crude oil prices and the expectation that they may stay subdued for a while comes as a reduction, whilst numerous different fallouts of the Trump administration’s tariff insurance policies could lead on to some ache for the Indian financial system. India is the world’s third-largest shopper of oil with an import dependency degree of over 85 per cent. This makes India’s financial system susceptible to international oil value fluctuations. It additionally has a bearing on the nation’s commerce deficit, international change reserves, the rupee’s change fee, and inflation fee, amongst others.

As per newest estimates accessible with the Petroleum Planning and Evaluation Cell of India’s oil ministry, the nation’s crude oil import invoice for the primary 11 months of 2024-25 was virtually $220 billion. Oil imports alone accounted for over a 3rd of India’s total merchandise import invoice for the April-February.

Shock transfer, twin motive

The transfer by Saudi Arabia and 7 different OPEC+ members to speed up the unwinding of manufacturing cuts got here as a shock. Why would main oil producers enhance provide at a time when prices are dealing with intense downward stress? Prima facie, the seemingly counterintuitive transfer by Riyadh seems to have two broad targets—protect and achieve market share even at the price of a dent in oil revenues, and restore self-discipline inside OPEC+ by reining in producers like Iraq, Kazakhstan, and the United Arab Emirates that have been exceeding the agreed manufacturing quotas.

One other doubtless consequence of the transfer could be the detrimental impression of decrease oil prices on American shale oil producers at a time when Donald Trump needs US oil and fuel manufacturing to be ramped up. As per trade estimates, US shale producers want WTI to common round $65 per barrel to meaningfully broaden manufacturing with out taking over a loss. If oil prices maintain at $60 or beneath that, as envisaged by some trade analysts, it could be a herculean activity for shale producers to ramp up, which not directly might assist dominant gamers like Saudi Arabia protect their share of the worldwide oil market.

It’s value remembering {that a} decade in the past, Saudi Arabia itself initiated a pointy fall in oil prices by flooding the market, a transfer straight aimed toward denting US shale producers’ capacity to enhance manufacturing at oil value ranges that have been unviable for them.

“OPEC nonetheless sits on substantial spare capability… Final week’s acceleration in quota unwind from OPEC might be a sign that the group needs to put extra of this spare capability at work, and enhance market share… In that case, market rebalancing would require non-OPEC manufacturing to decelerate extra severely, if not decline. As was the case in earlier downturns, US shale most likely will want to play a task on this,” Morgan Stanley Analysis stated in a current report.

The caveats

However the present oil prices and the doubtless trajectory going ahead, there are numerous ifs and buts that would majorly alter the situation. Chief amongst them is the form the commerce battle takes hereon and its impression on the worldwide financial system and consumption. Ought to it intensify and lead to a recession at a worldwide degree, the bearish sentiment on oil is certain to prevail. Quite the opposite, any constructive breakthrough that winds down the tariff wars and allays fears of a recession would definitely provide constructive cues for oil prices.

The opposite massive issue is what Saudi Arabia and different OPEC+ members do going ahead by way of managing international oil provide, and the way lengthy can they afford an oil value battle, as earnings from oil type a considerable chunk of their revenues. A protracted value battle and provide glut within the international oil market, whereas good for consuming nations like India, might deepen the cracks that have emerged inside OPEC and OPEC+ over the previous few years. It’s extremely unlikely that Saudi Arabia would need these cartels weakened.