OPEC+ Shifts Focus to Oil Availability Amid Hormuz Disruptions
OPEC+ is unlikely to defend a price floor in the near term, instead prioritizing oil availability as the Strait of Hormuz remains only half-normalized, said Anindya Banerjee, Senior Vice President and Head of Commodity Research, Currency, Commodities and Interest Rates at Kotak Securities. The analyst expects Brent crude to stay below $85 per barrel, which is beneficial for India.
Perfect Storm Risk if Hormuz Fully Reopens
Banerjee warned that full normalization of Hormuz over the next six to nine months could create a "perfect storm" of surplus if OPEC+ continues rolling back production cuts amid weak demand. He noted that before recent disruptions, the market had an estimated 2-3 million barrels per day (bpd) surplus despite official cuts of around 6 million bpd. Currently, 5-6 million bpd remains offline, acting as a price floor.
OPEC+ Faces Fragmented Environment
Commenting on OPEC+ handling of Iraq and Kazakhstan's persistent overproduction while allowing an August output increase, Banerjee described the group as facing a "fragmented and challenging environment." He stated: "Since Covid they had to cut back... first 2 million barrels, again. And then they had to ensure every member adheres to that. That was a huge challenge. And now we have seen how OPEC is fragmented. UAE has stepped out. Iraq is saying that we want a higher quota."
Hormuz Normalization Timeline
Banerjee noted that on a good month, about 2,000 tankers used to transit the strait. "Now it is still, I would say on a very good day, you are able to do half of that." He estimated full normalization will take 6-9 months, as empty tankers need to return and shipping companies require comfort. "If things were to come back online completely over the next six to nine months in Hormuz, this oil prices would crash," Banerjee said, adding that a resolution in Ukraine and Russia's return could add more supply just as demand lags.
India Benefits from Lower Oil Prices
For India, lower oil prices are a net positive. "India is very well-placed because... with the current dynamics which is playing out the lower oil prices which is going to be quite beneficial to us," Banerjee said. He noted that inflation pressures only build if Brent exceeds $85. Gas markets remain tighter and won't crash like oil due to logistics constraints, though Qatar supply should improve over six months.
Rupee Outlook and RBI Role
On currency, Banerjee sees the rupee with a "great taping till September." His base case is USD-INR at 92-93, with a pessimistic dollar scenario at 90-91, supported by RBI opening the debt market to FPIs and potential $50 billion+ inflows from FCNRB and ECB deposits offering 7%+ rates to NRIs. However, the RBI may intervene to rebuild reserves, limiting appreciation.
