Physical crude prices could hit USD 145 per barrel due to shipping costs
Kotak Securities' Head of Commodities Research, Anindya Banerjee, warns that physical crude oil prices could be much higher than benchmark rates due to soaring shipping costs. He notes that a USD 100-per-barrel screen price might translate to nearly USD 145 per barrel in the physical market, with VLCC freight rates crossing USD 1 million, adding another USD 25 or more per barrel.
Banerjee highlights the complexity of the oil market, where different prices exist for the same product due to rising shipping costs. He stresses that the price shown on screens is almost hypothetical, while the actual price for physical crude is different. At the time of reporting, Brent crude was trading around USD 101.31 per barrel, and crude oil was around USD 89.71 per barrel.
The analyst also points out that the oil market continues to command a substantial premium due to refinery outages and the ongoing Russia-Ukraine war, which has a greater impact than the conflict in West Asia. However, he notes that India is relatively well placed, with sufficient refining capacity and diversified sourcing protecting it from physical shortages.
On precious metals, Banerjee expects gold and silver prices to remain range-bound as long as US yields stay elevated. He predicts the Reserve Bank of India (RBI) will raise interest rates, citing ample liquidity in the financial system. He forecasts a 25 basis point hike in October and another in December, bringing rates closer to 5.75%, depending on oil price trajectories.