Bearish Oil Forecast: Cheaper Fuel To Benign Inflation — How $50-Crude Will Cool India’s Cost Of Living

International crude oil prices are projected to soften significantly in 2026, which could ease prices at the fuel station for Indians. This may keep retail inflation subdued, and rupee and macroeconomic growth outlook positive.

The Indian crude basket is expected to soften in line with the likely global trends, analysts at SBI Research said in a note, pegging their base case at $50 per barrel or even lower by June 2026.

"The outlook on Brent crude for 2026 is further softening from the current levels. US Energy Information Administration estimates that Brent crude oil price will fall to an average of $55 per barrel in the first quarter of 2026 largely driven by buildup of inventory," the note said.

Since the India basket has correlation of 0.98 with international benchmark Brent crude, the trends in Brent suggest further softening of Indian basket.

The Indian basket price is expected to fall to $53.31 per barrel, and due to dynamic daily pricing mechanism, this will get transmitted to fuel station prices, analysts said.

Crude futures fell 18% last year in their biggest annual drop since the 2020 pandemic, as supplies swelled from OPEC+ members and key producers elsewhere, while forecasters are predicting a significant and growing glut in 2026, according to Bloomberg News.

The fuel component of the Consumer Price Index basket may see further moderation. The average CPI-based retail inflation for financial year 2026-27 could go below 3.4%, SBI Research said.

For context, the Reserve Bank of India currently aims to keep inflation anchored around 4%, the mid-point of a 2%-6% range mandated by the government.

Since oil prices constitute the largest component in India's import basket and cannot be substituted with domestic production in short term, contraction of import bill on account of crude import prices will impact the rupee.

SBI Research's analysis suggests that if the USD/INR base rate is around 90.28, and the expected correction is 14%, then the rupee could strengthen by about 3%, bringing the exchange rate to roughly 87.5 per dollar.

Part of this appreciation may happen in the fourth quarter and assuming no major external changes, the strengthening trend could continue into FY27.

Benign energy prices will impact the GDP outlook favorably. The expected impact on annual GDP growth in the world's fifth largest economy is around 10-15 bps, according to the analysts.