Kotak Securities Warns of Massive Gap Between Screen and Physical Crude Prices

Kotak Securities' Head of Commodities Research, Anindya Banerjee, warned that physical crude oil prices could be nearly 50% higher than benchmark rates due to surging shipping costs. He noted that a USD 100-per-barrel screen price could effectively translate to around USD 145 per barrel in the physical market, as VLCC freight rates have crossed USD 1 million, adding roughly USD 25 or more per barrel.

Banerjee emphasized the growing complexity in the oil market, where different prices for the same product are further complicated by rising shipping costs. He highlighted the widening gap between benchmark and physical crude prices, stating that screen prices are often hypothetical, while actual clearing prices differ significantly.

At the time of reporting, Brent crude was trading at around USD 101.31 per barrel, while crude oil was at USD 89.71 per barrel. Banerjee also observed that the Russia-Ukraine war has a greater impact on crude markets than the conflict in West Asia, contributing to a substantial premium in oil prices due to refinery outages.

Regarding India, Banerjee noted that the country remains well placed despite geopolitical disruptions, thanks to available oil supplies and sufficient refining capacity to export refined products. He added that while price shocks are unavoidable if global crude prices spiral upwards, India's surplus refining capacity and diversified sourcing protect it from physical shortages.

On monetary policy, Banerjee predicted a 25 basis point interest rate hike in October, with another possible hike in December, bringing rates toward 5.75% depending on oil price trajectories. He cited ample liquidity in the financial system as a reason for the expected rate hike.