New Delhi: The Indian oil sector on Tuesday heaved a sigh of relief as crude oil dipped significantly in the early trade from Monday’s record high of $78.53 a barrel. However, oil prices plunged by more than 5 percent for the day, hitting a two-week low after Israel agreed to a ceasefire announced by US President Donald Trump to end hostilities with Iran. This sharp decline in prices is due to easing fears over oil supply disruptions in the Middle East after the truce.
The crude oil prices are now showing a downward trend and expected to remain around $65-70 per barrel after the most ‘sought-after’ deal of a ceasefire between Iran and Israel by Trump, followed by the confirmation of both the countries. In the opening trade, the Brent crude dropped significantly as much as $65 per barrel amid a buzz over a possible ceasefire between Israel and Iran, and the correction continued to hold below the $70 per barrel-mark.
Experts, however, said that with the tensions now easing, global oil markets may return to stability, which is a major positive for oil-importing countries like India. “However, lower oil prices are expected to help reduce the current account deficit and support economic growth,” they said.
As per a SBI report, different scenarios being built along the Iran-Israel conflict seem a little far-fetched, especially a worst-case scenario, on oil’s trajectory, given that any sharp increase in prices may not be a long-term phenomenon. “Now, with the ceasefire announced, the scenario of ceasefire with Israel has come into effect, and crude oil prices are likely to stabilise around $65,” the report said.
As per the report, if Iran had chosen a path of substantial retaliation against the US and the conflict had widened regionally, oil prices could have jumped sharply, reaching as high as $130-40 per barrel and this would have created a major shock for oil-importing countries. “However, another scenario of considering symbolic retaliation by Iran and continued conflict with Israel, would have kept crude oil prices steady around $80-90 per barrel,” the report said.
The report further stated that the only event that could have led to sustained prices above the crude price of $130 would be the use of weapons of mass destruction by either side, a situation so severe that its cost cannot be measured through normal economic models.