icra: 4 reasons why crude oil is not likely to sustain $80/bbl. How is India impacted?
Here are 4 reasons why Brent may sustain $80 per bbl:
1) Iran's Strait of Hormuz gamble too costly to close
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2) OPEC production
3) US Shale factor
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4) Global oil demand growth projections
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Impact on India
While the Israel-Iran tension has kept crude oil on the boil with an 8% jump in the past eight days and 23% over a month, the black gold is unlikely to breach the $80 per barrel mark, according to estimates by a couple of brokerages."While the Iran–Israel conflict is serious and merits close monitoring, we reckon Brent Oil price is unlikely to sustain above US$80/bbl in a durable way unless the Strait of Hormuz is closed, or critical Gulf infrastructure is targeted," Yes Securities said in a note. ICRA too expects crude prices to average between $70-80/bbl for FY2026.Despite persistent geopolitical tensions and repeated threats, ranging from the Iran–Iraq War to post-Iran Nuclear deal fallout, Iran has never acted on its threat to close the Strait of Hormuz.Yes Securities calls this restraint strategic and economic. The Strait handles nearly 20% of global oil consumption and is vital for Qatar's LNG exports, Iran's own trade, and the energy trade of regional allies like Iraq. A full closure would not only trigger military retaliation, particularly from the US, but also damage Iran's economic interests and international standing, this brokerage said.Tehran has wielded the threat of disruption as a geopolitical bargaining tool, without crossing the line into direct confrontation, Yes noted.With OPEC holding spare capacity of 4mbpd—well above Iran's 1.5mbpd exports—and a projected global market surplus of 0.9mbpd before the Israel-Iran flare-up, there is ample supply cushion.Yes believes that even if Iranian supplies of 1.5mbpd are taken out, OPEC's spare production capacity of 4mbpd is good enough to compensate for the fall.Since 2008, the rise of US shale has added millions of barrels per day to global supply, increasing flexibility and price elasticity. This has allowed the market to absorb geopolitical shocks more effectively, with tensions involving Iran, Libya, or Venezuela causing only short-lived price spikes."OPEC's diminished market share and increased spare capacity, especially from Saudi Arabia and the UAE, have further capped volatility, making oil prices more range-bound and positioning US shale as a soft ceiling on prices," Yes Securities said.China, which is the second largest consumer of oil, has seen a subdued demand post-COVID due to economic rebalancing and a weak real estate sector, Yes Securities said. Long-term energy transition trends such as the rise of electric vehicles, improved fuel efficiency, and supportive green energy transition policies are further restraining demand growth in OECD countries."This softened outlook is mirrored in recent agency forecasts. The International Energy Agency now expects global oil demand to grow by about 0.72mbpd in 2025, down from the earlier estimate of 1mbpd. EIA now projects global oil consumption to rise by 0.8mbpd in 2025, down from the earlier projection of 1mbpd," Yes said.According to ICRA, crude oil imports from Iraq, Saudi Arabia, Kuwait and the UAE that pass through the Strait of Hormuz (SoH) account for 45-50% of total crude imports by India. Moreover, about 60% of the natural gas imports by India pass through the SoH.A $10/bbl increase in the average price of crude oil for the fiscal year will typically push up net oil imports by $13-14 billion during the year.At these elevated crude oil prices, while the profitability of upstream players will remain healthy and their capex plans will remain intact, the marketing margins of downstream players will be impacted, along with the expansion of LPG under-recoveries.
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