US-Iran deal eases oil, but India's petrol relief may take longer
The US-Iran deal has reopened the Strait of Hormuz and cooled crude prices. But India may not see immediate fuel relief as supply chains and inventories recover.
A US-Iran peace agreement has raised hopes of an end to one of the biggest energy disruptions in recent years. With the Strait of Hormuz expected to reopen after the formal signing of the deal on June 19, oil markets have started pricing in the possibility of smoother crude supplies.
Brent crude prices have already fallen sharply from around $118 per barrel during the conflict to nearly $83. But Indian consumers expecting an immediate cut in petrol and diesel prices may have to wait.
The reason is simple: a fall in crude prices is only the first step. The global energy supply chain needs time to recover, and fuel prices depend on many other factors beyond just the cost of oil.
THE OIL CRISIS MAY BE ENDING, BUT THE RECOVERY HAS JUST BEGUN
The three-and-a-half-month conflict disrupted one of the world's most important energy routes. Nearly 1 billion barrels of crude oil and refined products were affected from producers such as Iraq, Kuwait, the United Arab Emirates and Iran. Around 20% of global LNG supplies were also trapped due to the disruption in the Strait of Hormuz.
The market avoided a deeper crisis through strategic and commercial stock releases and lower imports by China, the world's largest crude buyer.
However, Narinder Wadhwa, Managing Director and CEO of SKI Capital Services, said the next phase of the recovery could itself keep crude prices from falling sharply.
"Many countries are likely to replenish their strategic petroleum reserves once supply risks ease and prices moderate. This restocking process can create additional demand for crude oil in the initial phase, helping keep global crude demand elevated and preventing prices from falling sharply despite the reopening of Hormuz," he said.
This means the reopening of the Strait may bring relief, but a quick return to lower crude prices is not guaranteed.
WHY CHEAPER CRUDE DOES NOT MEAN CHEAPER PETROL
A common assumption is that lower crude prices should immediately result in cheaper petrol and diesel. Experts say the pricing mechanism is much more complicated.
Wadhwa said oil marketing companies are unlikely to react to short-term movements in crude prices.
"They prefer to ensure that the geopolitical risk premium has been permanently removed before passing on benefits to consumers," he said.
He added that petrol and diesel prices are influenced by multiple factors.
"Retail fuel prices depend not only on crude oil but also on refining margins, freight costs, exchange rates, dealer commissions, and taxes. A decline in crude prices does not automatically translate into an equivalent reduction at the pump," Wadhwa said.
He also pointed out that during periods of high crude prices, oil marketing companies often absorb part of the increase rather than passing the entire burden to consumers.
"Any subsequent fall in crude prices is often used initially to rebuild marketing margins rather than immediately cut retail prices," he added.
WHAT CRUDE PRICE CAN BRING FUEL RELIEF?
The biggest factor for Indian consumers is not whether crude falls for a few days, but whether lower prices are sustained.
According to Wadhwa, a stronger case for petrol and diesel price cuts will emerge only if Brent remains in a lower range for a longer period.
"If Brent crude stabilises in the $75–80 per barrel range over the next one to two months, the case for retail fuel price reductions becomes stronger. The key trigger will be sustained lower crude prices rather than a temporary decline linked to geopolitical developments," he said.
Dr Manoranjan Sharma, Chief Economist at Infomerics Ratings, echoed a similar view.
"Petrol and diesel prices could meaningfully reduce only when crude oil remains sustainably below about $80 per barrel," Sharma said.
He noted that oil marketing companies are still recovering earlier under-recoveries and focusing on repairing their balance sheets.
According to Sharma, even if there is a near-term reduction, it is likely to be "around Rs 2-4 per litre and carefully calibrated rather than a return to pre-war price levels."
WHAT ABOUT LPG PRICES?
The fall in crude oil may also not immediately translate into lower LPG prices.
Sharma said the outlook remains targeted rather than broad-based because the government already supports households through existing subsidy schemes.
"The government has cushioned households through periodic price cuts and subsidies, including a Rs 200-per-cylinder subsidy for PMUY beneficiaries," he said.
He added that lower global LPG and crude prices could reduce subsidy costs, but any additional relief would depend on global energy prices, fiscal priorities and the government's available budget.
The expected reopening of the Strait of Hormuz is a major step towards restoring normal energy flows. However, the journey from a lower crude price to a cheaper petrol bill is much longer.
Supply chains need to normalise, strategic oil reserves need to be rebuilt, and oil companies need confidence that lower prices will last.
For Indian consumers, the message is clear: the US-Iran peace deal may calm oil markets today, but relief at the petrol pump could take much longer to arrive.
A US-Iran peace agreement has raised hopes of an end to one of the biggest energy disruptions in recent years. With the Strait of Hormuz expected to reopen after the formal signing of the deal on June 19, oil markets have started pricing in the possibility of smoother crude supplies.
Brent crude prices have already fallen sharply from around $118 per barrel during the conflict to nearly $83. But Indian consumers expecting an immediate cut in petrol and diesel prices may have to wait.
The reason is simple: a fall in crude prices is only the first step. The global energy supply chain needs time to recover, and fuel prices depend on many other factors beyond just the cost of oil.
THE OIL CRISIS MAY BE ENDING, BUT THE RECOVERY HAS JUST BEGUN
The three-and-a-half-month conflict disrupted one of the world's most important energy routes. Nearly 1 billion barrels of crude oil and refined products were affected from producers such as Iraq, Kuwait, the United Arab Emirates and Iran. Around 20% of global LNG supplies were also trapped due to the disruption in the Strait of Hormuz.
The market avoided a deeper crisis through strategic and commercial stock releases and lower imports by China, the world's largest crude buyer.
However, Narinder Wadhwa, Managing Director and CEO of SKI Capital Services, said the next phase of the recovery could itself keep crude prices from falling sharply.
"Many countries are likely to replenish their strategic petroleum reserves once supply risks ease and prices moderate. This restocking process can create additional demand for crude oil in the initial phase, helping keep global crude demand elevated and preventing prices from falling sharply despite the reopening of Hormuz," he said.
This means the reopening of the Strait may bring relief, but a quick return to lower crude prices is not guaranteed.
WHY CHEAPER CRUDE DOES NOT MEAN CHEAPER PETROL
A common assumption is that lower crude prices should immediately result in cheaper petrol and diesel. Experts say the pricing mechanism is much more complicated.
Wadhwa said oil marketing companies are unlikely to react to short-term movements in crude prices.
"They prefer to ensure that the geopolitical risk premium has been permanently removed before passing on benefits to consumers," he said.
He added that petrol and diesel prices are influenced by multiple factors.
"Retail fuel prices depend not only on crude oil but also on refining margins, freight costs, exchange rates, dealer commissions, and taxes. A decline in crude prices does not automatically translate into an equivalent reduction at the pump," Wadhwa said.
He also pointed out that during periods of high crude prices, oil marketing companies often absorb part of the increase rather than passing the entire burden to consumers.
"Any subsequent fall in crude prices is often used initially to rebuild marketing margins rather than immediately cut retail prices," he added.
WHAT CRUDE PRICE CAN BRING FUEL RELIEF?
The biggest factor for Indian consumers is not whether crude falls for a few days, but whether lower prices are sustained.
According to Wadhwa, a stronger case for petrol and diesel price cuts will emerge only if Brent remains in a lower range for a longer period.
"If Brent crude stabilises in the $75–80 per barrel range over the next one to two months, the case for retail fuel price reductions becomes stronger. The key trigger will be sustained lower crude prices rather than a temporary decline linked to geopolitical developments," he said.
Dr Manoranjan Sharma, Chief Economist at Infomerics Ratings, echoed a similar view.
"Petrol and diesel prices could meaningfully reduce only when crude oil remains sustainably below about $80 per barrel," Sharma said.
He noted that oil marketing companies are still recovering earlier under-recoveries and focusing on repairing their balance sheets.
According to Sharma, even if there is a near-term reduction, it is likely to be "around Rs 2-4 per litre and carefully calibrated rather than a return to pre-war price levels."
WHAT ABOUT LPG PRICES?
The fall in crude oil may also not immediately translate into lower LPG prices.
Sharma said the outlook remains targeted rather than broad-based because the government already supports households through existing subsidy schemes.
"The government has cushioned households through periodic price cuts and subsidies, including a Rs 200-per-cylinder subsidy for PMUY beneficiaries," he said.
He added that lower global LPG and crude prices could reduce subsidy costs, but any additional relief would depend on global energy prices, fiscal priorities and the government's available budget.
The expected reopening of the Strait of Hormuz is a major step towards restoring normal energy flows. However, the journey from a lower crude price to a cheaper petrol bill is much longer.
Supply chains need to normalise, strategic oil reserves need to be rebuilt, and oil companies need confidence that lower prices will last.
For Indian consumers, the message is clear: the US-Iran peace deal may calm oil markets today, but relief at the petrol pump could take much longer to arrive.
