Brent oil tops $100 again! What is fuelling the crude rally?

Brent oil futures for May delivery were trading about 9 per cent higher in Thursday’s session amid reports that Iran had set ablaze two tankers in Iraqi waters, escalating attacks on oil and transport infrastructure across the West Asia. Tehran also warned the world should be prepared for oil prices of $200 a barrel, Reuters reported.

Brent gained even as the US announced release of 172 million barrels of oil from its strategic petroleum reserve in a bid to reduce oil prices. Oil market largely remained concerned over movement of oil from the Strait of Hormuz as three cargo vessels were earlier hit by 'unknown projectiles'. 

Add to concerns were a monthly report by Energy Information Administration report suggesting Brent oil prices were likely to trade above $95 a barrel over the next two months.

"In the current market conditions, as Strait of Hormuz remains closed, for the market to rebalance, roughly 20 million barrels of demand destruction may be required – a level we believe could occur if Brent reaches above $130 per barrel," Choice Institutional Equities said. 

Brent futures for May delivery were quoting 9.2 per cent higher at $100.51 a barrel. This was in addition to a 5 per cent rise in the previous session and a rise against $81.16 level hit on March 10. As per reports, explosive-laden boats attacked two fuel tankers, the Marshall Islands-flagged Safesea Vishnu and the Malta-flagged Zefyros, in Gulf waters near Iraq overnight. Both vessels, loaded in Iraq, caught fire following the attacks, disrupting shipping operations in the area, as per Reuters. 

India impact  

The Goldilocks narrative of strong growth and low inflation persists under the new GDP and CPI series, but is challenged by higher crude oil prices and fuel shortages," Nomura said in a global economic outlook note.

"Geopolitical tensions in the Middle East are starting to bite, with the government already hiking LPG prices and reports of natural gas
shortages. Expectations of further price increases for LPG, transport, restaurants and accommodation, and broader spillover effects have led us to raise our FY27 inflation forecast to 4.5 per cent from 3.8 per cent," Nomura said. 

Nomura said higher crude oil prices and energy disruptions present an upside risk to inflation, the fiscal deficit and the current account deficit, and a downside risk to growth. 

If oil persists at $100 a  barrel, the RBI is likely to maintain a hawkish stance to prevent a sharp rupee depreciation and buildup defence against the resultant “imported inflation ” shock, Elara said in a note.

"In our forecast path for inflation even before the oil shock, we expected 5 per cent-plus YoY CPI in H 2FY27E once the adverse base kicks in and food prices see an uptick , due to potential El Nino conditions. We see the RBI prioritizing liquidity management via bond purchases to limit growth shock and anchor benchmark yield," it said.