Crude oil prices retreated sharply from intraday highs on Monday after surging to their highest levels since mid-2022 amid escalating geopolitical tensions in the Middle East.
US crude benchmark WTI had earlier jumped 31.4% to a session high of $119.48 per barrel, while Brent crude rose nearly 29% to $119.50 per barrel. The rally came after the escalating US-Iran war lifted Brent oil prices by 27% and WTI oil prices by 35.6% last week.
However, selling pressure intensified at higher levels, leading to a pullback in oil prices. Brent crude fell about 11% from its peak, while WTI declined nearly 15% from its intraday high.
Despite the correction, crude oil prices remained elevated. Brent crude was trading 14.13% higher at $105.79 per barrel, while WTI crude was up 11.35% at $101.22 per barrel.
The surge in crude prices was triggered after some major producers cut supplies and concerns mounted over possible disruptions to shipping routes in the Middle East due to the widening US-Israel-Iran conflict. Energy markets remain particularly sensitive as the crisis is unfolding near the Strait of Hormuz, a strategic waterway through which nearly one-fifth of the world’s oil supply passes.
Since the start of the US-Iran war, WTI crude prices have surged more than 75%, while Brent crude has risen over 60%.
However, oil prices eased later in the session following reports that finance ministers from the Group of Seven (G7) will discuss a coordinated release of crude oil from emergency reserves.
According to a report by The Financial Times, the International Energy Agency (IEA) and three G7 countries, including the United States, have already expressed support for the proposal. The report said that the finance ministers will also hold discussions with IEA Executive Director Fatih Birol to assess the economic impact of the Iran war.
Impact on Indian stock market
The sharp rise in crude oil prices earlier in the session rattled financial markets and triggered a broad sell-off in equities. The Indian stock market crashed, with the benchmark indices Sensex and Nifty 50 trading more than 2% lower each, mirroring weakness in global markets as investors worried about the inflationary impact of higher energy prices.
Higher crude prices are particularly concerning for India, which imports more than 80% of its oil requirements. Data suggest that a 10% rise in crude prices can increase the Consumer Price Index (CPI) and Wholesale Price Index (WPI) by 40–80 basis points, while widening the current account deficit by around 30–40 basis points.
Historically, crude oil prices and returns on the Nifty 50 have shown a curvilinear relationship. At lower levels — typically below $90–$100 per barrel — higher oil prices often reflect stronger global demand and can coincide with better equity performance.
However, once prices rise beyond the $90–$100 range, the relationship reverses as higher oil prices significantly increase India’s import bill and raise concerns about supply disruptions caused by geopolitical shocks.
According to ICICI Securities, if crude oil prices remain above $100 per barrel for a prolonged period, it could signal severe supply disruptions. In such a scenario, the Nifty 50 could potentially decline by about 10% from its pre-conflict level of 25,178, with valuations compressing toward a price-to-earnings multiple of around 18x, close to the lower levels seen in the post-pandemic period.
However, the pullback in oil prices from intraday highs may offer some relief to equity markets if the trend continues.
Impact on gold and silver prices
Gold and silver prices have also reacted to the sharp movements in crude oil. In the international markets, gold and silver prices have eased as rising oil prices fuel concerns about higher inflation and reduce expectations of interest rate cuts by the US Federal Reserve.
Higher interest rates typically weigh on gold and silver because these assets do not generate yields.
However, analysts believe that if crude oil prices stabilize or decline further, precious metals may regain upward momentum due to strong safe-haven demand amid escalating geopolitical tensions.
Market Strategy
Market experts advise investors to remain disciplined during periods of volatility.
“After today’s sell-off, investors should first pause and reassess their portfolios. Evaluate whether the decline has impacted long-term high-conviction holdings or only short-term momentum trades. Positions that no longer fit the investment thesis should be trimmed, while quality stocks can be accumulated at lower levels,” said Nikunj Saraf, CEO of Choice Wealth.
He also advised investors to rebalance portfolios to target allocations, maintain higher cash levels to capture new opportunities, and add defensive assets such as high-quality bonds, short-duration debt, and a small allocation to gold if inflation and geopolitical risks continue to rise.
According to Saraf, Indian equities have become relatively more attractive after the recent correction, as valuations have moderated and the premium over other Asian markets has narrowed. However, investors should continue to evaluate earnings quality and currency risks before increasing allocations.
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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
