UPSC Syllabus Topic: GS Paper 3 –Infrastructure ( Energy).
Introduction
Lower global oil prices are shifting power across the energy system. Competition between OPEC+ and other producers, along with cautious consumer behaviour, is nudging the market toward surplus. For India, this phase supports lower costs, easier inflation, and more fiscal space, but the benefits are cyclical. Converting this opening into durable strength requires prudent policy, steady efficiency gains, and vigilant risk management. The tailwinds from lower global oil prices.
Status of crude oil market trend and forecast
Global Status of crude oil market
- Crude oil remains the world’s most traded commodity.
- Daily production exceeds 100 million barrels per day, and nearly half of this volume enters global trade.
- At current prices, the daily value of crude trade is above $3 billion.
- In 2025, global crude demand is expected to increase by only 1.3 mbpd (1.2%).
- Prices are sliding: Brent is near $61/bbl, down 16% this year.
- Divergent Outlooks for 2026: OPEC expects a small supply shortfall of about 50,000 bpd, whereas the IEA projects an overhang of about 4 mbpd.
India’s Status of crude oil market
- India ranks as the world’s third-largest oil consumer, with daily consumption exceeding 5 million barrels.
- India imports approximately 85% of its crude oil requirements.
- Domestic oil production has remained relatively stagnant at around 30-32 million tonnes annually over the past decade, while consumption grows at approximately 4-5% yearly.
Reason for the Reason for the decrease in crude oil prices
- Tech-driven supply rise: New drilling methods raised oil output outside OPEC. Production grew in the U.S., Canada, Brazil, Guyana, and Argentina. At the same time, OPEC+ began reversing its pandemic cuts. Together, supply became larger than demand, creating a surplus.
- Weak demand signals: Rich economies are growing slowly after COVID-19. Electric vehicles are reducing fuel use at the margin. China’s slowdown is also curbing oil consumption. These trends keep demand growth weak.
- OPEC+ choices and split: Saudi Arabia wants to restore output quickly to regain market share. Russia, under sanctions, prefers a slower approach. This difference makes coordinated action harder and adds uncertainty.
- Stockpiles and strategic buying: Consumers used lower prices to refill their strategic reserves. Producers stored over 100 million barrels of unsold crude on tankers at sea. These buffers softened the price drop but show that extra supply still exists.
- Geopolitics and sentiment: A cease-fire in West Asia reduced fears of supply disruption. Trade tensions lowered expectations for global growth. Both factors removed price support and reinforced downward pressure on oil.
It’s Impacts on India
- Current account gains: Lower crude prices shrink India’s import bill. Oil imports were $137 billion in 2024–25. Every $1 fall in crude improves the current account deficit by about $1.6 billion. This strengthens external stability.
- Inflation and fiscal room: Cheaper oil reduces subsidies burden and cools inflation. When the Centre keeps most of the price gains, the fiscal balance improves. This allows higher capital spending, which supports growth.
- Industry impact:
Lower crude is negative for upstream producers like ONGC and Oil India. Each $1 drop can cut ONGC revenue by ₹300–₹400 crore. It is positive for downstream refiners (HPCL, BPCL, IOC).
Other sectors that benefit include automobiles, aviation, paints, and FMCG.
- Monetary policy space: Every $10 drop can save about $15 billion on the oil bill. This eases inflation and can give the RBI more room for an accommodative stance when conditions permit.
- Trade and geopolitics: An oil surplus can lower dependence on discounted Russian, which may ease tariff frictions with the U.S. But if West Asian growth slows, remittances, exports, and investments from the region can stagnate, muting some benefits.
Way forward
Use buffers wisely. Release small volumes from strategic reserves to calm prices, and keep expanding strategic petroleum reserves (SPR) capacity.
Diversify fast. Redirect cargoes and secure flexible term deals, drawing more on alternatives like U.S. light-sweet crude so no single source becomes a chokepoint.
Substitute fuels. Raise ethanol blending (toward E20) to cut petrol demand and import dependence, guided by government clarifications on vehicle compatibility.
Coordinate internationally. Work through trusted platforms (IEA/IEF) for information-sharing, coordinated stock actions, and shipping/security updates that stabilise markets.
Keep refineries flexible. Plan refinery maintenance for low-demand periods, so many plants aren’t shut at once. Equip and run refineries so they can quickly switch between different crude types (light/heavy, sweet/sour). This way, if one supply source is tight or costly, India can use another grade and keep fuel flowing smoothly..
Conclusion
Lower crude prices improve India’s current account, inflation, and fiscal space, while aiding refiners and oil-linked industries. Risks remain from weak global growth, OPEC+ policy splits, and volatile geopolitics. India should bank the gains, manage exposure, and persist with consumption-mitigation—using counter-cyclical reserves and diversified sourcing—to handle quick turns and avoid short-lived relief.
Question for practice:
- Discuss how lower global oil prices are shaping current market trends, the key reasons behind falling prices, their impacts on India’s economy and sectors, and the practical way forward.
Source: The Hindu
