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What has happened:

* Brent prices are trading around USD97/b (up 5% from March 11, 2026) at the time of writing of this report.

* IEA has released 400 million barrels of crude oil into the market. However, the discharge rate remains capped at 2 million barrels per day (mbd). During the Russian – Ukraine war, the rate of discharge was approximately 1.1mbd.

* Three vessels in the Strait of Hormuz have been attacked on 11th March 2026. The shipments through the Strait of Hormuz remains close to zero.

In our opinion:

* 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 USD130/b. The balancing threshold is elevated because the supply deficit is likely to widen in the near term as: (a) floating inventories (oil on water) decline over the coming weeks, (b) flows through the Strait of Hormuz remain disrupted, and (c) curtailed production will require ~15–20 days to ramp up even after maritime transit resumes.

* To explain the current oil price environment, we split the trajectory of rise in oil prices into three parts: (i) the initial supply shock (below USD 90/b), (ii) precautionary demand necessitated by hoarding and inventory builds (USD 90 to 130/b), and (iii) a scarcity premium that ultimately forces demand destruction (beyond USD 130/b).

* Despite a physical disruption of 7–11 mb/d, the surge in Brent suggests the market is pricing a much larger effective deficit of ~20 mb/d, reflecting precautionary demand and panic-driven hoarding to gather pace over the coming days

* Provided Hormuz maintains status-quo into 4 th week without negotiations between US-Israel and Iran in place, the market may enter the scarcity-premium phase as floating inventories diminish and marginal storage tightens. In such a scenario, price moves tend to accelerate sharply, which could push Brent towards ~USD 130/b by end of next week.

Bear case scenario:

* If US-Israel intervention leads to renewed negotiations and the reopening of the Strait of Hormuz, Brent prices could retreat towards ~USD 80/b over the coming weeks. This would largely reflect the unwinding of the precautionary demand premium, although a residual geopolitical risk premium may persist. Implication on Indian Refineries and OMCs

* For Indian equities, the surge in diesel cracks is supportive for pure-play refiners. Data from the Petroleum Planning and Analysis Cell shows international Diesel (FOB) prices rising 65% MTD in March to USD 142.34/b, versus USD 86.03/b in February. As opposed to this, Brent has increased ~25%. This divergence implies stronger refining margin for pure-play refiners relative to integrated OMCs. Meanwhile, at the current price level, the marketing margin turns negative for OMCs. We raise our Brent estimate for Calendar Year 2026 from USD61.5/b to USD66/b, as previous estimate was based on catalyst that Russia – Ukraine war to end and possible lifting of sanctions on Rosneft and Lukoil. However, it is significantly delayed. Moreover, based on geopolitical developments, we have raised our estimate.

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