Kotak Securities Warns of $145 Physical Crude Price Amid Shipping Cost Surge

Kotak Securities' Head of Commodities Research, Anindya Banerjee, has highlighted a growing disconnect between benchmark crude oil prices and the actual physical market prices. According to Banerjee, while benchmark prices may show $100 per barrel, the physical market price could surge to nearly $145 per barrel due to soaring VLCC shipping costs. He noted that VLCC freight rates have crossed $1 million, adding approximately $25 or more per barrel to the cost.

The analyst explained that the oil market has become increasingly complex, with different prices for the same product due to rising shipping costs. He emphasized that the price shown on screens is almost hypothetical, while the actual price at which physical crude is being cleared is significantly higher. At the time of reporting, Brent crude was trading at around $101.31 per barrel, while crude oil was trading at approximately $89.71 per barrel.

Banerjee also pointed out that the Russia-Ukraine war continues to have a greater impact on crude markets than the conflict in West Asia. He noted that refinery outages are contributing to a substantial premium in the oil market. However, he suggested that India is relatively well placed despite geopolitical disruptions, thanks to ample refining capacity and diversified oil supplies.

Looking ahead, Banerjee expects the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) to raise interest rates in October and December, citing ample liquidity in the financial system. He predicted a 25 basis point hike in October and another hike in December, bringing rates toward 5.75 percent depending on oil price trajectories.