The cost of India's imported crude oil has fallen below the significant threshold of $60 per barrel for the first time in nearly three years, offering potential relief for the country's massive import bill and retail fuel prices.
Price Decline and Future Projections
Data released by the Petroleum Planning and Analysis Cell shows the Indian crude basket averaged $59.92 per barrel so far in January. This marks a drop from December's average of $62.2 and is the first instance of the price slipping under the $60 mark since February 2021. The softening trend is anticipated to continue, with SBI Research projecting in a January 5 report that the basket could fall to $53.31 per barrel by March 2026. Their base case scenario suggests it could reach $50 per barrel or even lower by June 2026, aligning with expected international trends.
Impact on India's Economy and Fuel Prices
This decline carries substantial implications for India's economy. As the country imports approximately 88% of its crude oil needs, lower global prices directly ease pressure on its import expenditure. Every $1 per barrel decrease reduces India's annualized oil import bill by roughly ₹13,000 crore. The benefit is already visible this fiscal year, with the import bill down to $80.9 billion as of November, compared to $92 billion in the same period last year, aided by higher discounts and lower prices.
Furthermore, under India's dynamic daily fuel pricing mechanism, a sustained fall in crude oil costs is expected to be transmitted to consumers at the petrol pump, potentially lowering retail prices of petrol and diesel.
Global Context and Geopolitical Factors
Globally, oil markets present a mixed picture. While prices recently saw a one-week high due to geopolitical tensions, including uncertainty in Venezuela, concerns about a long-term supply glut persist. The International Energy Agency forecasts that global supply will exceed demand by 3.85 million barrels per day in 2026. Adding to the bearish sentiment, Saudi Arabia cut the price of its Arab Light crude for Asian buyers for the third consecutive month, setting its February price at a premium of $0.30 a barrel over the Oman/Dubai average, down from $0.60 previously.
Analysts note that recent price spurts reflect short-term supply concerns, but the longer-term outlook remains soft. Choice Institutional Brokers expects Brent to average $61.5 per barrel in calendar year 2026, noting that additional barrels from Venezuela could increase supply and weigh on prices starting next year.
Another significant development is the narrowing price spread between West Texas Intermediate (WTI) and Brent crude to about $4 per barrel. Experts warn this compression could weaken demand for American crude in markets like India, as its price becomes less competitive once higher logistics costs are factored in.
The situation in Venezuela, which holds about 17% of global oil reserves, adds a layer of complexity. While US intervention has created uncertainty, analysts believe it is unlikely to immediately boost global crude supplies due to the country's prolonged production decline under sanctions. India, once a major importer of Venezuelan heavy crude, had scaled back imports after US sanctions were imposed in 2020.
