Crude Cools, But India's Oil Worries Don't

Brent crude fell to US$ 91.88 a barrel on 10 November, while US West Texas Intermediate declined to US$ 86.07 a barrel. Brent has retreated approximately 22% from its 30 October high of US$ 118, following a 5.85% decline in the previous session.

The correction has been substantial, but the reasons behind it are more complicated than a simple improvement in supply.

The immediate trigger was US President Donald Trump's indication that further military action against Iran was unnecessary "at this point". Following appeals from regional governments, including Qatar, the prospect of a diplomatic settlement gained traction, reducing the risk premium that traders had built into crude prices in anticipation of a prolonged conflict.

A more constrained Trump administration faces greater difficulty sustaining an expensive military confrontation, strengthening market expectations that Washington could prefer negotiations to another escalation.

But the decline also reflects improving supply conditions.

Organisation of the Petroleum Exporting Countries (OPEC) crude production increased by 1.38 million barrels per day in October to 22.87 million barrels per day, led by Saudi Arabia, Kuwait, and Iraq. The recovery of Middle Eastern exports, improved availability of alternative supplies, and concerns about the economic consequences of prolonged high prices have encouraged traders to reassess the possibility of a global supply deficit.

The market is consequently removing part of the geopolitical premium that had pushed prices towards US$ 120. It is not yet pricing in a guaranteed return to normality.

For Indian policymakers, however, the falling crude prices will bring cheer. After an exceptionally expensive first half of 2026-27, lower crude prices will certainly moderate the damage.

But the question is whether it can reverse the accumulated import expenditure, restore household purchasing power already eroded by inflation or automatically reduce the price of petrol and diesel.

India may now be getting cheaper oil, but it is not getting back the money it has already lost.

Will Indian Consumers Gain?

The more uncomfortable question is whether Indian consumers will be allowed to participate in the recovery. When crude prices surged, motorists faced higher fuel prices, businesses absorbed increased transportation costs, and the government had to intervene to protect oil marketing companies.

Now that international prices are retreating, will the benefits be shared with consumers, or will the government and oil companies retain most of the gains?

With Punjab and Uttar Pradesh heading towards crucial Assembly elections in early 2027, the timing of any reduction could acquire a political significance that extends well beyond petroleum pricing.

Sugandha Sachdeva, founder of SS WealthStreet, has cautioned that the market is pricing in an optimistic de-escalation scenario even though a comprehensive agreement between Washington and Tehran has yet to materialise.

Without a diplomatic breakthrough and sustained normalisation of shipping through the Strait of Hormuz, she expects crude to retain a geopolitical risk premium, with near-term support for Brent around US$ 93.

That warning deserves attention. The market has moved ahead of diplomacy, and the difference between an expectation of peace and an actual restoration of secure supply routes could determine whether crude settles below US$ 90 or rebounds towards US$ 110.

The Bill India Cannot Undo

The first-half import figures explain why cheaper oil is welcome but insufficient. India's crude oil import bill increased 46.3% to US$ 90.6 billion during April-September 2026, compared with US$ 61.9 billion in the corresponding period a year earlier.

Import volumes remained broadly unchanged at approximately 122-123 million tonnes. The increase was therefore overwhelmingly driven by prices rather than a comparable expansion in consumption.

September alone produced a crude import bill of US$ 15.4 billion, up 47% year-on-year, even as volumes rose only 7% to 21.7 million tonnes. The net oil and gas import bill, after accounting for petroleum product exports, climbed approximately 35% to US$ 81.1 billion during the first six months.

That expenditure has left the economy with a larger external financing requirement, while the higher cost of imported energy has worked its way into industrial inputs, freight, aviation, logistics, and household expenditure.

India’s Oil Imports

India imports more than 85% of its crude requirements. With annual imports of approximately 1.8-2 billion barrels, every US$ 1 increase in the average crude price adds roughly US$ 1.8-2 billion to the annual import bill. A sustained US$ 10 decline could save US$ 18-20 billion, assuming comparable import volumes and exchange rates.

But a US$ 20 billion potential saving over a full year is not a US$ 20 billion cheque arriving immediately in the government's account. It depends on how long prices remain lower, the cost of freight and insurance, the composition of imports, and the rupee-dollar exchange rate.

There is another complication. India's refiners imported a record 5.54 million barrels per day in October, up 9% from September and the corresponding month last year. The purchases reflected improved availability, preparations for festival demand, higher refinery utilisation, and opportunities to export refined products into markets facing supply tightness.

Higher imports at elevated prices mean that the country has increased its exposure just as the market begins correcting. The eventual savings will depend on the price at which these supplies were contracted, the timing of cargo deliveries and how quickly refiners can replace expensive inventory.

The rupee also complicates the arithmetic.

A weaker currency can offset part of the international price decline, making crude cheaper in dollar terms without delivering an equivalent reduction in rupee-denominated procurement costs. Lower oil prices can reduce dollar demand and support the currency, but foreign investment flows, US interest rates and the merchandise trade deficit will continue to matter. The economic dividend, therefore, is real but neither immediate nor automatic.

Who Keeps Oil Dividend?

This is where the government's policy faces its most serious test.

In Delhi, petrol was priced at ₹102.12 a litre and diesel at ₹95.20 on 10 November. These rates have remained unchanged since May 25, following four increases during May that cumulatively added ₹7.35 to petrol and ₹7.53 to diesel per litre.

The government subsequently reduced excise duty by ₹10 a litre on both fuels in March, when international crude approached US$ 122. But the reduction was intended to compensate public-sector oil marketing companies for their under-recoveries rather than produce a direct retail price cut.

The distinction is revealing. When international prices rose, the government's priority was to protect the financial position of oil companies without allowing another round of immediate retail increases. Consumers received no equivalent reduction at the pump.

Now that international prices are falling, oil companies have an opportunity to restore marketing margins and recover losses. But how much recovery is enough? At what point does protecting corporate balance sheets become an excuse for withholding consumer relief?

The government cannot indefinitely claim that retail prices must remain unchanged because companies are recovering earlier losses while simultaneously treating the fiscal benefits of cheaper imports as an improvement in its economic management.

The Centre also collects substantial revenue through excise duties, while states impose value-added tax. Petroleum products remain outside the Goods and Services Tax framework. This creates a complex tax structure in which both levels of government have a financial interest in maintaining fuel revenue.

Political Economy Of Petrol, Diesel

The political economy of petrol and diesel is consequently not just about crude prices. It is about the government's willingness to surrender some revenue, the oil companies' appetite for rebuilding margins and the states' readiness to share the burden.

A transparent formula for passing on sustained reductions in procurement costs would be preferable to discretionary price management. Oil companies should be allowed to recover legitimate losses, but consumers should receive a defined share of the savings once those losses and normal operating margins have been addressed.