Decline in Oil Prices

Prelims: Current events of national and international importance

Why in news?

Recently the oil prices slipped as much as 9% which were soaring for the past week due to Iran – Israel conflict.

Reasons for Decline in Oil Prices

• Strait of Hormuz remains open – About 25% of the global oil supply passes through the Strait. Iran’s decision not to close it calmed the oil market, reversing last week’s price spike.
• Iran’s controlled retaliation – Iran retaliated to US involvement in the Israel-Iran conflict by attacking US military bases in Qatar, but did not disrupt the Strait of Hormuz — a crucial oil shipping route which reduced fears of a major supply shock.
• Ceasefire announcement – US President Donald Trump announced a “fully agreed” ceasefire between Iran and Israel, boosting hopes of regional stability and reducing supply concerns.
• Restoration of market confidence – Traders gained confidence that global oil supplies won’t face significant disruption, pushing Brent crude prices down by up to 9%.

Implications of Declining Oil Prices:

• Upstream companies (Exploration & Production) – They are hurt by lower prices as extraction costs remain fixed.
• Profit margins shrink and stock prices of companies like ONGC and Oil India fell by 2.94% and 5.6% respectively.
• Downstream companies (Refining & Marketing) – Benefit from cheaper crude inputs.  and higher profit margins on refined products.
• Stocks of BPCL, HPCL, and IOC rose by 1.92%, 3.24%, and 2.04% respectively.
• Stable fuel prices – Crude oil falling below $65/barrel could translate to cheaper petrol and diesel, though cost optimisations by oil companies may be needed.
• Reduced vulnerability – India has diversified crude sources and built inventories.
• Many imports bypass the Strait of Hormuz, limiting exposure to West Asian disruptions.
• Government assurance – Petroleum Minister Hardeep Singh Puri confirmed several weeks' worth of supplies are secured, and alternate routes are being utilised to maintain fuel availability.

Reference

The Hindu| Why oil prices have declined