Anindya Banerjee, Head of Commodities Research at Kotak Securities, has stated that US President Donald Trump's recent warning at the UN General Assembly of 'total annihilation' for Iran is largely an election campaign strategy. According to Banerjee, Trump's speech was characterized by a lot of hyperbole. This assertion was made during an interaction with ANI News in Mumbai. Banerjee's comments come as crude prices remain capped near USD 100 per barrel due to an uneasy West Asian truce.
Global supply disruptions have decreased from 9-10 million barrels per day (bpd) to 5-6 million bpd. This decline is attributed to Saudi crude transit bypasses through Oman and the UAE, as well as the restarted East-West pipeline. These developments have contributed to the current crude price stability. Furthermore, Banerjee noted that any breakthrough in ongoing Russia-Ukraine diplomatic efforts could trigger a sizable downside unwind in energy costs. He emphasized that the current crisis is related to fuel rather than crude.
The longer oil prices stay above USD 100, it will have multiple rounds of impact on the economy. Banerjee highlighted that the rally in energy prices is temporary and described it as one of the most artificial bull runs he has seen. He differentiated current energy trends from broader markets, stating that energy is in a thematic kind of a bull run. This perspective suggests that the current energy price surge may not be sustainable in the long term.
US sanctions have affected Indian refiners, with Russian oil imports to India falling below 2 million bpd. This decline is due to loading disruptions caused by attacks on Russian infrastructure, which led to the disappearance of discounts on spot Urals crude. As a result, Indian refiners have shifted towards alternative offerings closer to home, such as Saudi crude. This change in sourcing has implications for India's energy landscape.
Proposed US secondary tariff legislation is unlikely to be applied to energy buyers like India or China. Banerjee noted that imposing maximum tariffs would exacerbate domestic US inflation, pushing US diesel prices toward USD 7.50 to USD 8.00 per gallon. He does not see a reason why the US would pursue a tariff policy that could complicate its own economic situation. This assessment suggests that the US may not impose severe tariffs on major energy buyers.
India's energy resilience has been ensured through effective energy diplomacy, allowing the nation to dynamically switch sources and keep domestic fuel price increases lower. Banerjee emphasized that this approach acts as an insurance cover for the country. He also explained that higher energy costs ripple through the national economy, acting as a tax on households. The impact of energy costs is distributed across three balance sheets: OMCs, government, corporates, and retail households.
Looking ahead, Banerjee warned of natural gas supply risks heading into winter, highlighting that 'the trouble is still there at a global level is gas, which means natural gas'. He advised patience, suggesting that global choke points will require careful navigation. On foreign exchange and central bank actions, Banerjee outlined that USD/INR should trade in a narrow range, with the RBI likely to intervene aggressively if crude prices continue to spike.
Key points
- Trump's UN speech is seen as an election campaign strategy with a lot of hyperbole.
- Crude prices remain capped near USD 100 per barrel due to an uneasy West Asian truce.
- India's effective energy diplomacy has ensured energy resilience and helped keep domestic fuel price increases lower.
