$100/barrel crude on screen, $145/barrel in physical market: Kotak Securities sees two prices

Mumbai: Physical crude oil prices could be significantly higher than benchmark rates as soaring shipping costs widen the gap between quoted and actual market prices, with a USD 100-a-barrel screen price potentially translating into nearly USD 145 per barrel, said Anindya Banerjee, Kotak Securities Head of Commodities Research.

In an interview with ANI, the analyst said the oil market has become increasingly complex, with different prices for the same product further complicated by rising shipping costs.

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Noting that "VLCC freight rates have crossed USD 1 million, which roughly adds another USD 25 or more per barrel," he stressed, "...a price of USD 100 on the screen can effectively become nearly USD 145 in the physical market."

Highlighting the widening gap between benchmark and physical crude prices, he said, "What we see on the screen is almost a hypothetical price, while the actual price at which physical crude is being cleared is different..."

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At the time of reporting, Brent crude was trading at around USD 101.31 per barrel while crude oil was trading at around USD 89.71 per barrel.

Apart from this, Banerjee also noted that the oil market has continued to command a substantial premium while the Russia-Ukraine war is having a greater impact on crude markets than the conflict in West Asia.

"Overall, the market is commanding a substantial premium because refinery outages are real, while the war in Ukraine continues to have a bigger impact on the oil market than the West Asia conflict...," he said.

In terms of India, however, things remain well placed despite the ongoing geopolitical disruptions. "India, however, is relatively well placed because oil supplies are available and we have sufficient refining capacity even to export refined products. India has become a major swing supplier of fuel products to the world..." he noted.

"While price shocks are unavoidable if global crude spirals upwards, India's surplus refining capacity and diversified sourcing protect it from physical shortages."

Banerjee also commented on gold and silver prices adding, "As long as US yields remain elevated, we are unlikely to see much upside. They will continue to trade within a range... The market will wait for the US interest-rate cycle to turn..."

Separately, as the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) begins its meeting on Monday, Banerjee said he expects the central bank to raise interest rates, citing ample liquidity in the financial system.

"I am leaning towards a rate hike for the simple reason that the MPC or RBI has got a nice cushion of massive liquidity," he said, noting that core liquidity remains well above 10 lakh crore rupees.

"A 25 basis point hike in October looks likely, and we could see another hike in December, bringing rates toward 5.75 per cent depending on oil price trajectories," he added.