See crude at $55/bbl if $61/bbl breaks: Microsec Commerze

Excerpts from Closing Bell on CNBC-TV18 Watch the full show » RELATED NEWS Crude falls below $66/bbl due to weak US GDP data See crude at $68/bbl if OPEC cuts output: Karvy Comtrade Crude has support at USD 60/bbl Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Shamik Bhose, Executive Director - Commodities, Microsec Commerze, said if crude breaks USD 61-60.50 per barrel levels then one can look at USD 57-55 per barrel.

According to Bhose, gold in the long-term could be a really good buy because of debasement of currency. "But in the short-term, I am afraid it is looking weakish once more."

 

Here is a verbatim transcript of the exclusive interview with Shamik Bhose on CNBC-TV18. Also see the accompanying video.

 

Q: What are the kinds of levels you are watching in crude now?

 

A: There was a short covering bounce and also with the dollar weakening in the short-term. I don't think it held USD 71 per barrel, which was what it broke, the Hurricane Katrina high. It has since fallen back to USD 64 per barrel from where it rallied day before.

 

That is why I think if USD 63 per barrel breaks, and if USD 61-60.50 breaks then you are looking at USD 57-55 per barrel target. Despite OPEC cutting output and people sort of shorting the bounce, which means demand destruction, the demand growth destruction and the actual reduction of movement in crude oil and products into emerging markets that people are seeing could carry on further. Especially if I look at the shipping market, it is down 92% in six months.

 

Q: Where are the supports that you are looking at for crude?

 

A: USD 57 per barrel and USD 55 per barrel in the short-term are the supports, and resistance at USD 68 and USD 71. This week it has established a range and if it breaks down from USD 61-60 per barrel, I expect USD 57 and USD 55 to be potential areas of support. If the carnage continues and demand destruction continues, and growth stutters in a variety of economies across the world, then it could go down further.

 

Q: Where do you see gold prices going?

 

A: Gold has made an astonishingly large range in the last one week, a USD 690 per ounce low and about USD 770 per ounce high. That is why I think unless it can close above USD 770 per ounce on a weekly basis; it cannot sustain this especially as the dollar is beginning to strengthen again.

 

The deleveraging and the hedge funds margin selling pressure means that gold could test USD 720 per ounce and USD 705 per ounce again. But as such I think gold in the long-term could be a really good buy because of debasement of currency. But in the short-term, I am afraid it is looking weakish once more.

 

Q: Would you say the same for base metals, because copper is looking very volatile?

 

A: As you correctly pointed out, it has wiped out all its gains. More importantly, the LME certified warehouse inventories keep going up in sync, copper, aluminium etc. As we discussed two weeks ago, zinc, nickel, and lead are all selling below their marginal cost of production. But unless the carnage stops we don't know whether it would return on the upside as things got overdone - USD 4,500 per tonne for zinc and USD 51,000 per tonne for nickel. Now, zinc is struggling to hold USD 1,100 and nickel is struggling to hold 10,000 per tonne. It is an amazing turn of fortunes, and I think this will go on for a little bit more.

 

Q: Would you suggest selling at these higher levels? How would you trade copper and nickel?

 

A: We would probably see 10-20% cuts in copper and nickel perhaps. Copper had a chart resistance in 1996 around USD 3200-3400 per tonne during the Sumitomo scandal. If it breaks down through USD 4,000 per tonne, it could go there long-term. That is a 12-year long chart because you have to look at least at price movements and look at secular bull runs. It hurts everybody. But what is pertinent here for six months is that there has been enormous amount of hedge selling, and that is reflected in the rising LME warehouse inventories. If you are a buyer you are going to withdraw over here because prices are moving in your favour.