Oil Could Hit $140 If West Asia War Drags, Warns Kotak Analyst

Anindya Banerjee, Head of Research for Commodities and Currencies at Kotak Securities, warns that the Brent crude oil price, currently hovering around USD 109, could breach the USD 130-140 mark if the war prolongs. "The longer this continues, the more the impact on oil prices... every passing week is crucial for oil prices," Banerjee told ANI in an interview. =

The disruption in oil supplies from the region, impacting around 8-10% of global oil and 15-20% of gas, is the primary driver behind the price surge. With inventories depleting rapidly and spot prices trading at a USD 20-30 premium over futures, Banerjee emphasizes that every passing week in April will only push prices higher. "If this continues, it will lead to demand disruption eventually," he adds, highlighting the risk of collateral damage to the global economy.

The Indian economy, while resilient, is bracing for the impact. Banerjee noted that inflation is a certainty, with headline CPI potentially crossing 5% in the short term. "If this continues for another six months, we could see core inflation rise, leading to some demand destruction," he says, forecasting a slowdown in GDP growth from 7% to around 6% or 5.8%. However, he remains optimistic that the government's efforts to ensure energy availability will mitigate the worst effects.

The rupee, too, is feeling the pressure. Stabilized around the 93 mark post-RBI interventions, Banerjee suggests it could weaken further as long as the Hormuz Strait remains locked and oil prices stay elevated. "The rupee will be under pressure... it can go lower, especially if bankers liquidate their excess long positions by April 10th," he warns.

Globally, the implications are grave. Banerjee points to a looming recession in the US, already grappling with a K-shaped economy and facing de-dollarization pressures. "If this disruption continues for another 2-3 months, the US economy could be staring at a deep recession," he says, citing Moody's Analytics' 49% recession probability forecast for the next 12 months.

Despite the uncertainty, Banerjee advises a cautious "hunker down" approach, awaiting developments in West Asia. A potential 45-day ceasefire could bring relief, pushing Brent crude down to USD 80-85, but until then, volatility is likely to reign. "Till then, it's better to wait for things to evolve," he suggests.

As markets navigate these choppy waters, Banerjee's insights underscore the need for vigilance. The next few weeks are critical, and while there's hope for resolution, the path ahead remains fraught with risks. "Let's hope things get resolved in a week's time," he says, a sentiment echoing across global markets.

- ANI