Kotak Securities warns of $145 physical crude price amid soaring shipping costs

Kotak Securities' Head of Commodities Research, Anindya Banerjee, has highlighted a growing disparity between benchmark crude oil prices and actual physical market prices. According to Banerjee, while screen prices may show crude at $100 per barrel, the real cost in the physical market could be as high as $145 per barrel. This gap is driven by soaring shipping costs, with VLCC freight rates exceeding $1 million, adding around $25 per barrel to the price.

Banerjee noted that the oil market has become increasingly complex, with different prices for the same product due to rising shipping costs. He emphasized that the screen price is almost hypothetical, while the actual price at which physical crude is traded differs significantly. At the time of reporting, Brent crude was trading at approximately $101.31 per barrel, while crude oil was at around $89.71 per barrel.

The analyst also pointed out that the Russia-Ukraine war is having a greater impact on crude markets than conflicts in West Asia. He noted that refinery outages and geopolitical disruptions are contributing to a substantial premium in oil prices. However, India remains well positioned despite these challenges, with ample refining capacity and diversified sourcing protecting it from physical shortages.

Turning to other commodities, Banerjee suggested that gold and silver prices are likely to remain range-bound as long as US yields stay elevated. He also commented on the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) meeting, expecting a 25 basis point rate hike in October, with another possible hike in December, bringing rates toward 5.75 percent depending on oil price trajectories.