Cheaper oil and what it means for India

In a surprise twist, oil prices have taken a sharp fall, thanks to an unexpected production surge by OPEC+. And this drop isn't just about cheaper energy—it could reshape India’s trade balance, strengthen the rupee, and spark shifts across key sectors. The real question is: will it last? Historically sharp and sudden price changes typically mean revert.

OPEC+’s surprise action

For years, OPEC+, an alliance of major oil-producing nations, has been managing supply to control prices. Much like the strategy behind limited-edition sneakers—where scarcity makes consumers willing to pay a premium—OPEC+ reduced its oil production, effectively pulling nearly 6% of the world's supply off the market. This calculated move successfully pushed prices higher, creating a controlled scarcity in the global oil market.

Source: Investing.com

For quite some time now, OPEC+ has been cutting back on oil supply, as highlighted in the red-circled areas above. These supply cuts have had a noticeable impact, significantly influencing crude oil prices.

In a surprising turn of events, OPEC+ took an unexpected step by drastically increasing oil production overnight. Instead of the anticipated measured adjustment of around 135,000 barrels per day, they ramped up supply to a staggering 411,000 barrels per day.

It was as if the floodgates had been thrown wide open, rather than just a careful easing of the flow. This sudden surge in production overwhelmed the market, leading to a sharp and noticeable drop in oil prices.

While the actual reasons have not been disclosed, here are some potential reasons for the same:

• As per RBC Capital Markets, a global investment bank, suggests that this move could be aimed at enforcing stricter controls and improving compliance. OPEC+ faces difficulties with countries like Russia, Iraq, and Kazakhstan who’ve been overshooting their production quotas, which makes it challenging for the group to effectively manage crude oil supply in the market.

• As per MST Marquee, an institutional large-cap equity research company, they explained that by increasing their production, OPEC is basically trying to grab a bigger share of the oil market. In simple terms, they’re boosting output to protect their turf and hold on to global market share.

How does this affect India's economy?

The fluctuation in Brent crude oil prices has always had a direct impact on India's economy, particularly on the current account deficit (CAD). Historically, when oil prices fall, the effects are quite noticeable:

• Lower import bills: 85% of India’s crude oil demand is fulfilled by imports valued at $158 billion as per FY23, a drop in prices leads to reduced costs for these imports. This, in turn, narrows the trade deficit, which forms a significant part of the CAD.

• Improved CAD: With lower import expenses, less foreign currency is spent, causing the CAD to shrink. India's CAD stood at 1.2% of GDP in FY24. Experts say that every $1 drop in crude prices could shave off around $1.5 to $1.6 billion from the CAD—no small amount, especially since the gap’s been widening in recent quarters.

Source: Money control

• Strengthened rupee: A smaller CAD takes the pressure off the Indian rupee, potentially leading to an appreciation of the currency. This appreciation can make imports even more affordable.

Of course, when oil prices rise, the opposite effects occur—higher import bills, a worsening CAD, and increased pressure on the rupee. The price of Brent crude oil continues to play a pivotal role in shaping India's economic landscape.

Now let’s focus on the sectors that stand to benefit when crude oil prices drop—an insight that could be particularly useful for retail traders.

Who wins when oil prices drop?

Lower oil prices bring good news for oil marketing companies (OMCs), as their raw material costs decrease. This often improves their marketing margins, especially when retail fuel prices remain unchanged. On top of that, reduced working capital requirements and potential inventory gains further boost their financial performance.

Paint manufacturers, as many of their essential raw materials, like solvents and resins, are petroleum-based. Cheaper oil reduces production costs, helping them save money and increase profit margins.

The aviation industry enjoys significant advantages too. Since fuel is one of its largest operational expenses, falling oil prices make jet fuel more affordable, cutting costs and enhancing profitability. In some cases, airlines might lower ticket prices as well, encouraging more travellers and driving demand. Now we will provide the top 5 stocks for each of the sectors mentioned above

Top 5 OMCs by market capitalisation

Source: Screener.in; Data as on April 09, 2025

Top 5 paint companies by market capitalisation

Source: Screener.in; Data as on April 09, 2025

Top 2 aviation companies by market share capitalisation

Source: Screener.in; Data as on April 09, 2025

Impact on Indian oil prices?

The oil price dropped and the Indian government starting from April 8 has planned to raise the special additional excise duty on gasoline by ₹2 per liter (from ₹11 to ₹13) and on diesel by ₹2 per liter (from ₹8 to ₹10), aiming to increase their revenue. Here’s the kicker though the retail prices for petrol and diesel will not change.

Outlook

The recent fall in oil prices could be a welcome relief for India—lower import costs, reduced pressure on the rupee, and better margins for oil-sensitive sectors like aviation, paints, and oil marketing companies. But the big question is: will it last?

On one hand, if OPEC+ keeps ramping up supply and global demand slows, prices might stay low—benefiting the above mentioned sectors along with the wider economy. On the other, any geopolitical tensions or a rebound in global demand could send crude climbing again, reversing the gains. For investors, it’s important to watch how long this dip holds.

Keep an eye on global cues—OPEC's next move, demand from China and India, and tensions in oil-producing regions. Closer to home, monitor how companies in oil-sensitive sectors manage margins and inventory. The real opportunity lies in staying alert to which way the wind blows next.