Page 5 - FIPI - Policy & Economic Report May 2026

May 2026 POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

India’s external sector recorded a strong start to FY 2026–27. Total exports (merchandise and services
combined) increased by 13.59 per cent year-on-year to US$80.80 billion in April 2026. Merchandise
exports rose by 13.78 per cent to US$43.56 billion, supported by strong growth in petroleum products,
electronic goods, engineering goods, and pharmaceuticals. Petroleum product exports alone increased by
34.66 per cent, reinforcing the sector’s importance to India’s trade performance. Foreign exchange
reserves remained above US$700 billion, providing a strong buffer against external shocks and financial
market volatility.

As far as oil and gas industry is concerned, more than ten weeks after the outbreak of the conflict in the
Middle East, escalating supply disruptions through the Strait of Hormuz have led to an unprecedented
drawdown of global oil inventories. Benchmark oil prices have posted wild swings in response to
conflicting signals on whether the United States and Iran will soon reach a deal to end the conflict, with
North Sea Dated plunging from a high of $144/bbl to below $100/bbl before rebounding again. More than
ten weeks after the war in the Middle East began, mounting supply losses from the Strait of Hormuz are
depleting global oil inventories at a record pace. Benchmark oil prices have posted wild swings in response
to conflicting signals on whether the United States and Iran will soon reach a deal to end the conflict, with
North Sea Dated plunging from a high of $144/bbl to below $100/bbl before rebounding again.

On the supply side, Saudi Arabia and the UAE have successfully redirected some exports to terminals
loading outside of the Strait. At the same time, stocks from commercial and government strategic storage
sites in consuming countries are flowing into markets to offset part of the losses. Observed global
inventories, including oil on water, were drawn down by 250 mb over March and April, or 4 mb/d.
Producers outside of the Middle East also pushed output higher and lifted exports to record levels in
response to the crisis. Indeed, 2026 supply growth expectations from the Americas have been revised up
by more than 600 kb/d since the start of the year, to 1.5 mb/d on average. Moreover, Atlantic Basin crude
oil exports, now heading primarily to hard-hit East of Suez markets, have increased by 3.5 mb/d since
February, with notable gains from the United States, Brazil, Canada, Kazakhstan and Venezuela. Russia’s
crude oil exports have also risen, as repeated attacks on its refineries have cut domestic use and led to
higher shipments, while the United States temporarily waived sanctions on Russian oil on water.

Hedge funds and other money managers maintained a broadly bullish stance toward crude oil markets,
although net long positions declined over April, mainly in ICE Brent. Speculators reduced their exposure
by selling the equivalent of 42 mb across ICE Brent and NYMEX WTI futures and options, resulting in a
7.8% decline in total net long positions. The adjustment in positioning followed a peak in bullish sentiment
observed in mid-March. Mixed geopolitical signals in the Middle East and evolving expectations regarding
potential de-escalation prompted profit-taking from previously accumulated long positions. Despite these
adjustments, overall speculative positioning across crude markets remained relatively elevated, indicating
that market participants continued to anticipate tight market fundamentals amid persistent geopolitical
uncertainties.

Crude spot prices were mixed and remained highly volatile over April. Light sweet benchmarks Brent and
WTI averaged higher, m-o-m, in April, while medium sour benchmark Dubai averaged lower during the
same period. Light sweet benchmarks rose sharply early in the month amid firm demand for available
barrels in the spot market and supply disruption in the Middle East, while refiners tend to increase
throughputs ahead of the start of the holiday driving season. Strong demand was particularly evident in
the Atlantic Basin, where North Sea Dated surged to multi-year highs, supported by strong demand from
both European and Asia-Pacific refiners and increasing competition for shorter-haul crudes. However, the
Dubai price dropped despite persistent market fundamentals, particularly in the sour market.

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