According to a recent report by SBI Research, crude oil prices are projected to decline sharply, potentially reaching $50 per barrel by June 2026. This development is expected to have a significant impact on India's economy, particularly in terms of inflation, the strength of the rupee, and overall economic growth.
Factors Contributing to the Price Decline
The SBI Research report aligns with projections from the US Energy Information Administration (EIA), which anticipates Brent crude prices to average $55 per barrel in the first quarter of 2026. This decline is primarily attributed to a substantial build-up in global inventories. The Organization of the Petroleum Exporting Countries (OPEC+) had initially decided to increase production, and subsequent attempts to reverse this strategy through output cuts have not resulted in a sustained recovery in prices. This suggests that supply-side dynamics and global inventory conditions are outweighing geopolitical disruptions, keeping oil prices under pressure.
Impact on Inflation
The expected decrease in crude oil prices is likely to ease inflationary pressures in India. SBI Research estimates that a 14% correction in the Indian crude basket during the fourth quarter of FY26 could exert a downward pressure of approximately 22 basis points on CPI inflation, assuming a 48% pass-through. Consequently, average CPI inflation in FY27 is projected to remain decisively below 3.4%. This is in line with the Reserve Bank of India's (RBI) objective to keep inflation around 4%.
Impact on the Rupee
Lower crude oil prices are also expected to positively influence the Indian rupee. Given that crude oil constitutes a significant portion of India's import basket, a decline in oil prices will reduce the oil import bill, thereby strengthening the rupee. Assuming a USD/INR exchange rate of ₹90.28, the projected correction in crude prices could lead to an approximate 3% appreciation in the rupee, potentially bringing it to around ₹87.5 per dollar. A portion of this appreciation is likely to occur in Q4 FY26, with the strengthening trend expected to continue into FY27, assuming other factors remain constant.
Impact on GDP Growth
The SBI Research report suggests that softer energy prices will support India's growth outlook, potentially adding 10-15 basis points to annual GDP growth. Benign energy prices reduce input costs across various sectors, improve corporate margins, and support consumption. The research note emphasizes that the macroeconomic gains from lower crude prices are broad-based, affecting households, businesses, and the external sector simultaneously.
Expert Analysis and Forecasts
Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at SBI, expects Brent crude to decelerate to $50 per barrel or potentially lower by mid-2026. The Indian crude oil basket, which has a 0.98 correlation with Brent crude, is expected to follow this softening trend. Autoregressive quantile forecasts estimate the median price of the Indian crude basket to fall to $53.31 per barrel by March 2026 and further to $51.85 by June 2026.
Broader Market Dynamics
While geopolitical risks have intermittently surfaced, crude oil prices have remained subdued. The analysis suggests that supply-side dynamics and global inventory conditions are outweighing geopolitical disruptions, keeping oil prices under pressure. Investment banks largely predict soft prices, ranging from $56 to $67 per barrel, influenced by expected oversupply and potential economic slowdowns.
Conclusion
The projected decline in crude oil prices to $50 per barrel by June 2026 is expected to provide significant relief to India's economy by easing inflationary pressures, strengthening the rupee, and boosting economic growth. These projections are based on current trends in global oil markets and historical relationships.
