Oil slumps below $80 as US-Iran truce eases supply fears

Crude oil prices have fallen sharply, slipping to their lowest levels since the West Asia conflict erupted, as markets cheer a breakthrough in US-Iran diplomacy and growing hopes of uninterrupted energy supplies through the Strait of Hormuz.

Brent crude has dropped below the $80-a-barrel mark — its lowest level since March 2026 — as geopolitical risk premiums rapidly unwind following the signing of a ceasefire agreement between Washington and Tehran. The decline has offered much-needed relief to oil-importing nations and India's oil marketing companies (OMCs), which have grappled with months of elevated crude prices and volatile margins.

Analysts, however, caution that the current softness in oil prices may prove temporary.

"If the US-Iran situation progresses positively and full normalcy is restored at the Strait of Hormuz, crude prices could soften further in the near term," analysts at PL Capital (Prabhudas Lilladher) said.

But they warned that the respite may not last long.

"We expect crude oil prices to rise again as countries are likely to replenish inventories and Strategic Petroleum Reserves (SPRs) to maintain optimum resource levels, creating incremental demand in the market," the brokerage noted.

After enduring one of the most severe energy shocks in recent years, global markets are finally seeing signs of stability.

"We see some positivity as the US-Iran ceasefire deal finally gets signed, although uncertainty remains, especially regarding the nuclear agreement," the analysts added.

Relief for consumers, not yet for OMCs

While falling crude prices typically boost the fortunes of fuel retailers, analysts say India's OMCs are unlikely to enjoy an immediate earnings recovery.

According to PL Capital, the April-June quarter (Q1 FY27) is expected to remain weak due to the lingering impact of high-cost crude inventories accumulated during the period of elevated oil prices.

"Q1 FY27 is expected to weigh sharply on profitability, impacting earnings for the full year," said Swarnendu Bhushan, co-head of research at PL Capital.

The brokerage estimates under-recoveries of around Rs 7 per litre on petrol and Rs 10 per litre on diesel during the quarter, even after factoring in a Rs 10-per-litre excise duty cut and caps on refining cracks.

Analysts say the sharp fall in crude prices came too late to fully offset the impact of elevated input costs and compressed marketing margins during most of the quarter.

As a result, earnings are expected to remain under pressure despite the recent improvement in fuel marketing margins.

Excise duty rollback emerges as key risk

Even as crude prices retreat, another challenge is beginning to emerge for fuel retailers: the possibility that the government may reverse the excise duty cuts introduced during the energy crisis.

Analysts argue that the duty reduction was implemented as a temporary measure to shield consumers from soaring fuel prices rather than as a permanent structural policy.

Now, with crude prices moderating, retail fuel prices rising and marketing margins turning positive once again, the government could gradually withdraw some of that support.

"The potential rollback of the excise duty cut remains an under-appreciated risk for OMC earnings," analysts said.

Such a move could limit the benefit of improving crude economics and delay a meaningful recovery in profitability.

Cautious optimism returns to energy markets

For now, traders are reassessing global supply risks as tensions in the West Asia ease and fears of disruptions through the Strait of Hormuz fade.

The unwinding of geopolitical premiums has helped push oil prices lower, offering relief to consumers, importers and inflation-sensitive economies.

Yet analysts remain cautious.

While the US-Iran ceasefire has improved near-term sentiment, uncertainty surrounding the broader nuclear agreement, the possibility of renewed crude demand from strategic stockpiling, and risks to OMC margins mean the road to a sustained recovery remains far from certain.

As PL Capital summed up, "Q1 FY27 losses and continued uncertainty around the excise duty rollback suggest that OMC profitability is likely to remain under pressure through FY27."

With IANS inputs