Kotak institutional equities lowers crude forecast: Brent expected to average USD 85/bbl
New Delhi, June 22
Citing a shift in market fundamentals and the potential for a cooling of geopolitical tensions, Kotak Institutional Equities has revised its crude oil price outlook. The brokerage has lowered its Brent crude assumption to USD 85 per barrel for the current quarter, down from its previous estimate of USD 95 per barrel.
Kotak Institutional Equities noted that the West Asia crisis led to one of the largest supply disruptions in recent years, pushing oil prices sharply higher in March. However, as the disruption persisted and inventories declined, crude prices surprisingly continued to fall rather than rise further.
In its latest report, the brokerage house outlined a clear downward trajectory for oil prices as the year progresses. While the market has been gripped by volatility due to the West Asia crisis, Kotak anticipates a stabilisation in energy prices.
Brent crude is expected to average USD 85 per barrel in the current quarter. The brokerage expects prices to decline further to USD 75 per barrel later in the year, a figure they have maintained for FY28, FY29, and the longer term. The forecast for FY27 has been officially revised to USD 85 per barrel, down from the earlier projection of USD 95.
The brokerage said the chances of a final agreement remain high after the US and Iran reached a consensus on key issues and amid growing international pressure for a resolution. "In our view, with the US and Iran agreeing to key points (though Israel's absence has been conspicuous) and intense global pressure, the likelihood of a final agreement is high," it said.
However, it cautioned that geopolitical risks are likely to persist, as Iran's demonstrated ability to influence traffic through the Strait of Hormuz could continue to keep energy markets volatile.
"We believe geopolitical risks persist, with Iran's new realised ability to use the SoH as a lever likely to keep energy markets volatile," the report said.
According to the brokerage, oil prices corrected sharply despite supply disruptions, supported by strategic stockpile releases and weaker imports from key consuming nations. "Despite a cumulative impact of ~1.3-1.4 bn bbl due to SoH disruption, large strategic reserve releases by OECD countries and China, along with sharply reduced imports by select countries (~6mb/d by China and Japan, according to IEA) also helped keep prices in check," the report added.
With oil prices sharply declining, the brokerage house reverted to "oil price assumption of USD 85/bbl from USD 95/bbl," the report added.
The brokerage has lowered its FY27 crude oil price forecast to USD 85 per barrel from USD 95 per barrel earlier, while retaining its forecast of USD 75 per barrel for FY28, FY29 and the longer term.
"From ~US$105/bbl in 1Q, we assume Brent prices to average US$85/bbl in 2Q and decline to US$75/bbl," the report added.
Furthermore, as the bulk of the impacted SoH disruption returns in 4QFY26, oil markets will likely be in surplus as per the report. However, Kotak noted, "there will be a need to replenish reserves and geopolitical premiums may remain elevated."
"We maintain our LT oil price assumption of USD 75/bbl," it said.
"We revert to a crude oil price assumption of US$85/bbl (from US$95/bbl) for FY2027E, while maintaining US$75/bbl for FY2028/29E and LT," the report noted.
— ANI
Reader Comments
As someone who drives daily, this is a relief! Petrol prices have been eating into my budget for months. 🤞 Hope the benefits actually reach consumers and not just the oil marketing companies. Also, we should be accelerating our renewable energy push so we're less dependent on these global fluctuations.
Good analysis from Kotak but I think the geopolitical risks are being underestimated. Iran controlling the Strait of Hormuz is a game-changer - they now know they can disrupt global supply. Even with strategic releases, one major incident could send Brent back to $100. We should diversify our energy sources and look at more long-term contracts with Russia and other suppliers.
The part about China and Japan reducing imports by 6 mb/d is interesting. It shows how demand destruction plays a role alongside supply. But for India, lower oil prices could be a double-edged sword - our exports might become less competitive if our currency appreciates against petro-currencies. Still, overall bullish for our fiscal situation.
While lower crude is good for the economy, I feel we need to be cautious. The report mentions "replenishing reserves" - does India have adequate storage capacity? During the 2022 spike, we used our reserves wisely but they need rebuilding. Also, the reliance on US-Iran talks is fragile given Israel's absence. Let's hope diplomacy holds.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.