The tension in the Middle-East has had a considerable impact on oil prices and David Lennox of Fat Prophets believes prices are not likely to see a significant downside at the moment. According to him, Brent crude may range between USD 100 to 110 whereas West Texas may hover around USD 80 to 90.
Also read: Gold may test Rs 31500-31450: Nirmal Bang
As far as gold is concerned, Lennox feels it is very difficult to predict its direction. However, according to him, the US fiscal cliff may have an impact on the golden metal in the short term.
Here is the edited transcript of the interview on CNBC-TV18.
Q: What is the investor world making of the developments in Middle East and what impact it will have on crude?
A: I guess we have seen a relatively mild response from all the traders to what is happening on the Gaza Strip. Till now, it was been seen as a very local conflict, given that it is considerably remote from the major oil assets and away from any of the major transporting routes for oil.
Until very recently we saw quite muted prices in terms of what was happening on the Gaza Strip. The reason for the spike was the fact that the world has finally worked out the change in that conflict and Hamas has now got the ability to actually strike at Jerusalem as well as Tel Aviv. That does give the Israelis some thought to perhaps do a ground incursion to increase its buffer zones of safety.
Q: How will that have a secular impact on crude? One thought that with Hamas extending or at least a news of a ceasefire coming in from Gaza, you should see a substantial reduction in crude prices. Immediately would you see more falls in crude? For the longer term would this Hamas development have a bullish impact on crude?
A: We would not expect to see a significant downward move in the price of oil at this point in time. We have for sometime been calling the risk that we saw in the oil price and said it would go lower. We do think that as we are starting to look into 2013, there is probably a basis on which we can see oil prices actually starting to base out. We can start removing that downside risk that we have seen.
We say that because we are starting to see some further strength in US housing. We do think that it will lead to consumer confidence increasing in the US and of course with that we believe it will come to the use of petroleum products jumping back to their vehicles. Going forward, we would be now starting to look at oil prices probably basing out around USD 80-90 for West Texas and probably somewhere around USD 100-110 for Brent just for the foreseeable future.
Q: Gold has gone very sideways for the last month or so. It has been hovering in a range. Where do you see it over the short-term and over the medium-term as well?
A: Over the short-term, it has really been quite difficult to get the direction of gold right. We have seen it react to a number of factors and events that have pushed it upward and downward. We do think however, that over the short-term one of the key factors that the markets will be looking at is the US fiscal cliff coming out on January 1.
We do think that it is going to happen and if implemented as it currently stands, USD 600 billion of tax hikes and spending cuts will have a significant impact on the US economy as the US government swings. We believe that it will have an impact on the US dollar. It is likely weaken it and a weak dollar in the short-term would lead to higher gold prices.
Unfortunately, we can see the same scenario playing out over the medium-term. We are looking for US dollar to remain relatively weak going into the medium-term. We think that will have quite a reasonable support for gold prices. It will push the gold price higher, not dramatically so, but perhaps towards the USD 1,850 levels that we have been calling for sometime.
Q: We still have five weeks to finish 2012, but if you are looking for one year investment buys for 2013, what would you tank up for the end of 2012?
A: I think we would be very happy to look at three commodities going into 2013. We are very comfortable with natural gas. We think the growth profile will start blossoming in that particular commodity going forward.
We are very comfortable with gold going forward. The other one would be crude. We do believe that the energy requirements of the globe are continuing to grow and we think that will support both natural gas usage and crude and probably US dollar will support gold for 2013.