Crude may hit $123/bbl if $130/bbl breaks: Comm Warrants

Peter McGuire, MD of Commodity Warrants Australia, said crude prices will stay high given the dollar weakness and gold strength.

McGuire remains bullish on gold, where he sees more upside.

He said if crude breaks below USD 130 per barrel, it could go down to USD 123-124 per barrel. But crude may at best drop to a bit below USD 130, but bounce back to USD 145 per barrel.

Excerpts from CNBC-TV18's exclusive interview with Peter McGuire:

Q: Should equity market player starts celebrating that crude is cooling off or is it too premature to do that?

A: I think it is a little bit premature. Let us just be realistic with what happened over the last couple of trading sessions. It certainly is off its USD 147 per barrel peak. But when we think about what has happened over the last six weeks, it has started from the start of June all the way from the USD 127-128 per barrel to USD 148 per barrel and it is quite normal. It tested those highs and then we saw correction back down and then it tested them again and now there’s a correction back down.

We have had issues as far as inflation in concerned. There are very high inflation numbers out of the rest of the world. The US dollar is showing some weakness. We have seen a rise in gold. The oil prices will remain high in long-term. We have just got to live with that.

Q: Would you term what you have seen up until now as a correction in crude prices? How would funds approach this? Do you think it is a good opportunity to get back in or do you think people are getting a bit nervous about crude and how volatile it has gotten?

A: Crude certainly is volatile. Over the last eighteen months it has gone up from USD 50 per barrel at the start of January 2007 to nearly USD 150 per barrel in the last couple of weeks. Gold price saw a major correction. A lot of the hedge funds and a lot of the big traders moved into energy. It has been a wonderful trade over the last couple of months and now it there is a correction. Let us see where the US stock market moves over the next couple of days. If it does move northwards then I think crude oil will probably stay at that USD 130-135 per barrel level or might go a little bit lower. But in the longer-term, with geopolitical and hurricanes, I would not be surprised to see crude back up to USD 145 per barrel very shortly.

Q: What is the limit below which you would reconsider this view? What is the base you think crude can cool down to in this fall and still remain in a bull market?

A: We are bullish at the moment. We would have to look at closing those positions if it got under USD 130-131 per barrel over the next couple of days. If it certainly moves through that sort of resistance level then we may see it at USD 123-124 per barrel. But it is very difficult to forecast. If we look at the fundamentals and the technicals, then one needs to assess and try and make some value judgment about where they see opportunity over the next 7-10 days.

We remain bullish but we are conscious that it has corrected and we will just have to sit on the sidelines to see what’s happening. Time will tell where the trend takes us.