Crude oil prices have dominated google searches as they headed for their weakest monthly performance. News agency Reuters reported that Washington and Tehran are likely to extend their ceasefire agreement, which will also allow for unrestricted shipping through the chokepoint, the Strait of Hormuz.
This got the internet doomscrolling whether any relief will be seen on the domestic front as the centre carried out a series of fuel price hikes last week over inflationary concerns.
Oil slides 20% in May
The international oil benchmark, Brent crude futures, dropped 20% in May and were last quoted at the $91 per barrel mark. The main US contract, West Texas Intermediate (WTI) futures, fell by more than 16% this month and was trading around the $87 per barrel level.
Markets remain conflicted over whether the shipping route, which transits nearly one-fifth of the global energy flows, will reopen or not, as it continues to remain under a dual blockade. Iranian media declined US President Donald Trump’s claims over the trade route, stating them to be a “mixture of truth and lies.”
International crude prices, especially Brent, become of utmost importance to Indian markets, as the country is the world’s third largest oil importer and imports a large chunk of its supplies from the Middle East.
So where are crude prices headed?
Experts say that if a material resolution comes through for the West Asia conflict and the flows through the Hormuz passage resume, oil prices could fall by 16-17% from their current levels.
“If the strait genuinely reopens and tanker movement begins to normalise, we would expect Brent to correct meaningfully lower, towards the $70–75 region, before stabilising in a $70–80 band, with WTI trading roughly $6–7 below that,” said Anindya Banerjee, Head of Commodity and Currency Research at Kotak Securities.
According to Hareesh V, Head of Commodity Research at Geojit Investments, the return of Iranian barrels into the market is likely to trigger a sharp near-term correction in oil prices.
“The supply balance could shift back into surplus relatively quickly. In that scenario, Brent could slide towards the $70–75 range in the near term, with a test of the pre-war average of around $65 per barrel possible,” the Geojit analyst said.
Whereas, Banerjee emphasised that prices are unlikely to immediately return towards their pre-war levels, citing that the physical logistics of the market do not reset with a deal announcement.
At least six months to return to normal
“Tanker scheduling, war-risk insurance, freight rates, floating storage, and the more than one billion barrels of inventory already drawn down will take at least six months to work back to normal,” the Kotak analyst added.
He notes that a final resolution would therefore reflect a sharp downward repricing rather than an instantaneous return to pre-war levels.
If tensions escalate, Brent may test $130
Both analysts note that if tensions in the Middle East escalate, Brent could test the highs of the $130 per barrel mark.
“A continuation of tensions does not, in our view, imply a comfortable trading range; it implies a grind higher towards $130–140 on Brent, with WTI in the mid-$120s to low-$130s, as inventories approach their limits,” Banerjee added.
“However, such higher levels may not be sustained for long,” added Hareesh V, noting that ongoing supply disruptions, especially via the Hormuz Strait, continue to keep significant geopolitical premiums embedded in prices.
What if the deal falls apart?
In an event where the situation deteriorates and a deal between the two countries falls apart altogether, oil prices would not just spike, but the outcome would also prove to be negative for the global economy, noted Banerjee.
“If a deal the market had already discounted were to fall apart, the move would be more than a simple reversal of the relief rally; the entire risk premium would be re-rated sharply, because confidence in a reopening has been the principal factor restraining prices,” the Kotak analyst said.
Renewed conflicts involving the US, Israel, and Iran would rapidly move Brent towards the $130+ level, and in the case of severe escalation where bypass infrastructure is also targeted, the global benchmark could possibly climb above the $150 per barrel level.
“It is stagflationary, weighing on growth and adding to inflation at the same time. The notable point is that the deadlock scenario and the escalation scenario converge on broadly the same destination, in the region of $130–140 and above; escalation simply arrives there in a matter of days rather than weeks,” Banerjee said.
So what’s the outlook for 2026?
The year-end outlook for oil remains dependent on West Asian geopolitics. “Either a resolution is reached, in which case Brent is placed in the $70–80 range by year-end, or the non-resolution track — whether through gradual inventory exhaustion or renewed escalation — places it above $130,” said Banerjee.
Echoing a similar stance, Hareesh V, a Geojit analyst, said that in a base case of easing tensions, Brent may settle around $75–80 by the end of 2026. If disruptions persist, Brent could stay near $90–100, with extreme escalation pushing prices toward $120–130, while a ceasefire could drag them back toward $65.
Disclaimer: The views, estimates, and price forecasts mentioned in this article are those of the cited analysts and are based on current market conditions, geopolitical developments, and available information. This article is for informational purposes only and should not be construed as investment, financial, or trading advice. Readers should consult qualified financial advisors before making any investment decisions.
