Whalesbook
Oil Prices Set for Steep Fall
Crude oil may slide to $50 a barrel by June 2026, a projection by SBI Research that stands independent of current geopolitical events. The forecast anticipates positive ripple effects for India, including lower inflation in FY27, a stronger rupee, and enhanced economic growth.
Production Dynamics Drive Downtrend
Recent OPEC+ decisions to increase production, followed by output cuts, have failed to reverse the downward price momentum for crude oil. Medium-term data since 2022 for Brent and the Indian crude basket already show a discernible downtrend, with geopolitical events having only temporary impacts on price surges.
Forecasts Point to Sub-$60 Levels
Soumya Kanti Ghosh, Group Chief Economic Advisor at SBI Research, projects Brent crude to decelerate to $50 per barrel or potentially lower by mid-2026. This outlook is largely supported by the US Energy Information Administration, which expects Brent crude to average $55 a barrel in the first quarter of 2026, attributing the decline to rising inventories.
Indian Basket Correlation
The Indian crude oil basket, which shares a 0.98 correlation with Brent crude, is expected to follow this softening trend. Moving average analysis for the Indian basket shows prices trading below key 50 and 200-period averages, signaling further declines from the current $62.20 per barrel level. Autoregressive quantile forecasts estimate the Indian basket could reach $53.31 by March 2026 and $51.85 by June 2026.
Inflation and Rupee Outlook Brighten
The projected 14% correction in the Indian basket price in Q4 FY26 is expected to translate into lower fuel prices. This could exert downward pressure of 22 basis points on the Consumer Price Index (CPI), potentially bringing average CPI inflation for FY27 below 3.4%, aligning with Reserve Bank of India's (RBI) December policy forecasts. Analysis suggests a 14% correction could lead to a 3% appreciation in the rupee, pushing it towards ₹87.5 per dollar from the current ₹90.28.
GDP Growth to Get a Boost
Benign energy prices are also set to positively influence India's Gross Domestic Product (GDP) outlook, with an estimated boost of 10-15 basis points to annual GDP growth. This aligns with the central bank's projection of 7.3% real GDP growth for 2025-26.