See crude in $90-100/bbl range next quarter: Fat Prophet

Producer group OPEC agreed to keep its oil output target unchanged for the second half of the year. In an interview to CNBC-TV18, David Lennox, resources analyst at Fat Prophet says, if oil production does stay at that particular rate and there is no claw back in production, he would expect Brent prices to probably weaken up over the next few days.

He is expecting crude to trade probably between USD 90 and USD 100 per barrel. “We cannot see it wanting to go above that level, but we can certainly see risk perhaps on the downside. So, in the next quarter, that is the range that we would be looking for,” he adds. Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Also watch the accompanying video. Q: The OPEC meet took place in Vienna. What was the outcome of the OPEC meet? What exactly is the implication on the crude market? A: The OPEC cartel decided not to change the 30 million barrel cap. They have kept it the same. However, the caps probably not really worth much more than voice at this point in time because the OPEC group of countries are infact producing oil at Tibet, 31 million barrels a day. So, they are over that cap. If oil production does stay at that particular rate and we don’t see any claw back in production, we’d expect Brent prices to probably weaken up over the next few days. Q: The OPEC Secretary General Abdullah al-Badri himself said that it is about 1.6 million barrels that they are producing more than the 30 million target. Would you expect Saudi Arabia to take up the responsibility of reducing the production? Would you read that there is some kind of floor to crude prices now? A: At this point in time, we are watching very closely the OPEC countries to just see where infact they will start reducing production. Saudi Arabia has been one of the key nations in terms of supporting a lower price for crude, when the price did obviously escalate throughout last year. Given statements that they have made in the past, perhaps they will be the first to react and start closing in production. And if that does happen, they are of a size of an influence where they will able to really put a bit of stability under the price of crude at this particular point of time. It might be a little bit lower, maybe closer to USD 90 per barrel rather than USD 97-98 per barrel where it is trading at currently. That is what we are looking for. That is going to be the key going forward. _PAGEBREAK_ Q: Iranian oil will perhaps come off the market in the weeks to come. Should one read that, therefore, as a possible bullish factor or will that be entirely neutralised by the excess that’s already being produced? A: It’s difficult to say just where that will pan out through into demand and production. We do think that demand will stay relatively weak going forward. That’s really what's been the catalyst for the recent fall. Wherever we look globally, we can't see any reason for that change certainly in the near term. There is no silver lining for economic growth globally over the next few weeks and months. Q: Say on Sunday, there is a positive outcome from Greece or say in the next couple of weeks there is some amount of easing which comes in possibly from the FOMC and that results in possibly a risk on trade which takes place globally. What levels would you think that Brent crude could then go to in case there is a risk on trade globally? Would you cap it at that USD 128 level that we had seen in March for Brent? A: We certainly wouldn’t see it anyway near towards those levels. We do think that even though we may see a risk on type trade occurring should the Greeks vote in favour of an austerity type government, that’s going to take some time for it to actually work through into the economic scenarios. At this point in time, there are just so many moving parts within the EU zone that we think that there will be a euphoric rally. But we don’t think it will last very long. We would then start seeing the price we think wind back towards this probably in the region where it’s trading around the USD 97-98 a barrel. So, the movements could be volatile in either direction at this point in time just depending on what does come out of Sunday. Q: What is your range for crude for the quarter and the most likely average? Will the average itself move south of the current USD 97 per barrel? A: We are expecting it to trade probably between about USD 90 and USD 100 per barrel. We cannot see it wanting to go above that level, but we can certainly see risk perhaps on the downside. So, in the next quarter, that is the range that we would be looking for. We would potentially be perhaps seeing maybe an average a little softer than USD 98 per barrel where it is trading at the moment. Again, we are looking at the demand side of the equation, we just cannot see where that drive is going to come from to push the prices higher. Q: How exactly would you placed on other precious metals or on precious metals in general such as gold and silver? A: Gold traders will be looking to see which way the Greek elections go, if we infact get an outcome. If they do go into a government that is pro-austerity, we will perhaps see a rise in the Euro and fall in US dollar because of investors wanting to move back into the Euro zone. That will lead to a weak US dollar and rise in gold. If it goes the other way, we see a government that would like to be less austere then possibly we will see gold rise again because people will be seeking that safe haven type characteristic that gold has. So, we think either way, gold has probably got more potential to rise over the next few days than it has to fall.