Expect crude to hit $150/bbl ahead: Peter McGuire

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Peter McGuire , Managing Director, Commodity Warrants Australia , sees support for crude at USD 130 per barrel levels and resistance at USD 140 per barrel. He dos not expect crude prices to cool off in the near-term unless there is huge demand destruction. He expects gold to touch USD 925-935 per ounce soon.

 

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

 

Q: Any signs of crude topping off or is USD 150/bbl still looming?

 

A: Yes, I think probably USD 150 is on everyone's radar. We saw Saudi Arabia put a sign of good faith in 200,000 barrels of extra supply into the market as of yesterday out of that meeting in Jeddah. We certainly see that from hereon over the next couple of months of higher prices. Probably the next barrier is USD 140-145. I am not sure where it will go. We are looking at geopolitical tensions coming out of Israel and certainly the Iran factor. Then we only need something to spike and prices will move very quickly through USD 140.

 

Then the other side of course is the hurricane season in the States and that is traditionally in the July-September period. So, we need to be very mindful of where we are heading and I wouldn't be surprised as our research shows higher prices from here.

 

Q: Along with these anchor levels at the top, the problem seems to be even on a bad day, crude doesn't significantly crash. Do you have a sense of what kind of base it is building right now?

 

A: At the moment, USD 130 seems to be the barrier. It doesn't seem to be hitting any lower than that. As soon as it hits USD 130, it bounces back to USD 135-138 and then it is just ranged trade. So, that seems to be the new resistance level. That is on the downside.

 

On the upside, USD 140 seems to be the magic number to break. If it breaks that, I am sure that it will smash through USD 145 very quickly. It is a little bit of a waiting game. I think everyone was hinging on what was going to happen in Jeddah over the weekend. Now with Saudi Arabia coming out with that number, I am sure it will be very interesting tonight after it opens up in New York to see what traction and what sort of power is behind the market.

 

Q: There has been a steady movement in gold as well over the past few days and it is now trading above USD 900 per ounce. Are you seeing any resurgence of interest there or a possibility of that as well moving sharply higher?

 

A: This is where you are looking at it for the moment and that is the most important factor. Inflation is taking off across all sectors. It is sky high throughout Asia and it seems to be growing through high energy prices and of course, high food prices.

 

With corn and soybean at all time highs, we are seeing gold now at USD 903 and we are putting a recommendation out that we think it will be higher. How high? I am not sure it will break USD 1,000 in the near-term. It could be there in the next couple of months. But certainly USD 925-930 is on our radar. Silver as well. I wouldn't be surprised to see platinum move. It has shown USD 900 as the magic number to get through and I think it has got the potential to be a little bit higher over the coming weeks.

 

Q: Looking at all the factors you track with crude in terms of seasonality, demand-supply trends, et cetera, what is seasonally your best guess of when crude has the best chance of cooling down in the foreseeable future?

 

A: I am not sure. We really expected Saudi Arabia to come out with higher than 200,000 barrels. It just cannot get through that USD 128-130 level. Unless something happens outside the square and demand just drops off and we see large numbers of demand destruction, which we haven't seen as yet, then that is the only chance I see of the price actually coming back. I am sure the hedge funds are behind it. I am sure there are a lot of speculators and of course the sheer demand coming out of all sectors.

 

We know it is a finite resource. We have discussed that many times over the years. We are seeing increasing demand across India, China and generally all parts of the world, and that is not going away.

 

So, reality is that unless it hits that USD 115-120 in the short-term, it looks as though this USD 125-140 range is where it is going to stick over the coming weeks and months. If that is the new resistance level then it could trend a lot higher and we wouldn't be surprised to see it well above USD 150 over the next couple of years.

 

Q: Eventually if and when it cools down, do you think it will have to be from a supply move or do you think in the foreseeable future given price hikes in China, demand will slow down in the next three to four months to facilitate that cool off in crude that everybody is hoping for?

 

A: That is the first part. We have to see the numbers as far as any demand destruction is concerned. If that does start to slow down over the coming weeks or months, then it is something to observe. But numbers don't show any back off. Certainly in the US we are seeing as far as auto sales, but that is for large V8 cars. People are still driving smaller vehicles and they are just changing their habit. So, they could still be driving miles, but just driving different types of vehicles.

 

But it takes months if not years for that to roll across. There is huge demand across all the sectors. I am just seeing that the research that we have done, there isn't really any point to push back for the USD 100-110 in the short-term. The US dollar certainly caused a major concern. There are so many factors that are attributed to price and we just don't see it backing off.

 

Q: On the subject of money interest, are you still seeing fresh money being pumped into commodity funds or energy funds, or is this largely money that has gotten at a lower level and is now riding the upmove?

 

A: Huge money coming out of the stock indices went back to August-October last year when the Dow and the other markets peaked. All the US indices were well down. Then we are looking at the money that piled into gold and rode very strongly into mid-March, which was a phenomenal trade all the way to USD 1,040.

 

Then we just saw that a lot of the long buyers of gold moved out of that market and moved into energy come the middle of March and that has been now a trade for the last two and half to nearly three months. Certainly there have been some huge moves also in soybean and corn, which are at all time highs, and now with the floods in the US, that has contributed to those markets.

 

So, the commodity sector is very much alive and kicking. We have seen absolutely phenomenal returns over the last year. As the market is now taking a little bit of a breather, it may take a breather back off crude oil, and the energy sector with natural gas and so on, and the next market that could move and spike in the short-term as we have projected is gold.