WTI crude falls 4% to $81.55 as Treasury yields slide

WTI crude dropped 4% to $81.55 a barrel while the 10-year Treasury yield slid 6 basis points to 4.64%, a joint decline that points to softening demand expectations and a shift toward safer assets.

"The geopolitical storm has passed, but sustained oil prices below $80 a barrel are crucial for economic relief," said Anurag Singh of Ansid Capital.

The slide extends a retreat that has taken crude down 42% from April's $126 peak as US-Iran peace talks progress and the Strait of Hormuz reopens. Brent slipped below $75 a barrel, while aviation stocks including IndiGo and SpiceJet rallied as much as 4% on lower fuel costs. Nayara Energy cut petrol prices by 5 rupees and diesel by 3 rupees a litre, the first reduction in more than two years.

The dual decline carries a warning: while cheaper crude eases inflation pressure and supports the rupee, a sustained drop tied to weakening demand would point to a global slowdown, Morgan Stanley cautioned. Lower Treasury yields typically reflect expectations of slower growth, and the combination of falling oil and bonds suggests investors are pricing in a cooler economic outlook rather than a supply-driven reprieve.

Demand signals turn softer

The demand picture is mixed. The Organization of Petroleum Exporting Countries cut its forecast for global oil demand growth in 2026 to 580,000 barrels per day in its monthly report, while the International Energy Agency now expects oil consumption to contract by 1.6 million barrels per day this year. US crude inventories rose by 2.4 million barrels last week, an industry report estimated, adding to the bearish supply picture.

For India, the world's third-largest oil importer, the slide cuts both ways. Falling crude strengthened the rupee, which closed at 95.84 per dollar after a sharp rise, and trims the import bill. But Morgan Stanley notes the benefit depends on the reason for the decline — a demand-driven slump would hurt export-oriented sectors and corporate earnings even as fuel costs fall.

The cross-asset reaction has been broad. US stocks opened higher Thursday as softer producer price data and lower crude boosted risk appetite, with the S&P 500 touching an intraday record. Bond yields eased across the curve, providing relief to equity valuations. The rupee gained for a second session, supported by dollar sales from the Reserve Bank of India. Foreign investors have pumped more than $12 billion into Indian equities this year, the most among emerging markets.

For policymakers, cheaper crude offers room to ease. Falling oil prices might boost growth beyond central bank forecasts and reduce the need for rate hikes, according to Saugata Bhattacharya. But supply chain disruptions and embedded input cost pressures require monitoring, he said, as the Reserve Bank of India balances growth concerns against inflation projections.

The next test comes as OPEC+ prepares to reintroduce 2.2 million barrels per day of output over the next two years, a decision that could keep prices under pressure. If WTI holds below $80, analysts expect further relief for airlines, paint makers and tyre companies, while energy producers face margin compression. The last time crude fell this far this fast was during the 2020 demand collapse, when WTI briefly traded below zero — a reminder that sharp oil declines can reflect economic stress as much as supply abundance.

This article is for informational purposes only and does not constitute investment advice.