Crude unlikely to decline further; gold may spike: Barratt

In an interview with CNBC-TV18, Jonathan Barratt, CEO and Chief Economist of Barrattsbulletin.com said that most negatives have been factored in crude prices and there is not much scope of crude declining from its current levels.

According to Barratt, USD 80 is the lower end of the range and for Brent crude it could be about USD 96-95. Barratt is also of the view that Saudi Arabia is expected to continue pushing for higher production and that might push prices lower.
There has been some correction in base metals and Barratt feels that the price of copper has gone down mainly on global growth concerns. However, Barratt is hopeful about gold and said that it could see a reasonable spike over the next 24 hours. Talking about the euro-dollar equation, he explained that the market is heavily short on euro and 1.235/$ could be an important support. Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: How much lower do you see crude going?
A: I actually don't see it going too much lower. I think there is a lot on the agenda at the moment for crude prices. I think USD 80 to me is the lower end of the range. When you look at Brent it could probably be around USD 96-95.
When I look at the meeting in OPEC, at the results, there is a no quota change. But I do see Saudi Arabia continuing to pressure for an increase in supply which could certainly see prices a little bit lower. But I think it's within OPEC's band and there is more on the horizon that suggests this deep is something that we should look to hedge or cover. Q: We have been cheering this as the full and final blow to crude prices though. How much would you say of what's happened of the correction is because of hedge fund activity and how much is looking like a fundamental crack in the system which will cause more durable pressure on prices?
A: I do think that there has been more fundamental news in terms of the demand destruction and the supply of commodity. When we look at the inventory side, particularly in the US, it is a gauge of how global inventories are. We can see that build has definitely been there for some time.
I do believe that the funds have certainly been there, but there has also been a back-up story that has allowed the price to actually come under pressure. So the juncture of news in terms of stimulus from the US, China and some resolution to the problem in Greece perhaps will find a few funds nervously short, trying to look to cover and that might provide the bounce. Q: There has been quite a correction in base metals as well and that market some people point out looks more vulnerable than any other. What kind of downside risk could you expect to see on some of these base metal prices?
A: I think when you look at copper, it has been an interesting one to follow because the supply side of copper has been restricted. The price of copper has gone down due to concerns on global recovery. But if you start seeing more stimulus programs coming to play, then you will see that deficit become quite large.
I think one of the interesting things with base metals at the moment is that when looking at stimulus programs particularly from Europe and if Germany, particularly Merkel starts to swing around in terms of redemption fund or something to the size of about 2.3 trillion euro, then you will start to see some confidence coming back. As a result of that I think you will get a sharp bounce back in some of these base metals, particularly in copper. Q: What would your big bet be in terms of the commodities space for the second half?
A: We are not looking at commodities. I am liking oil. I know the market is exceptionally short, but I can be quite optimistic. All the bad news is on the table and there are policies in play to actually control. There is nothing outside the square that we don't know yet. To me, oil is at the right end to start accumulating for a push back to the top end on the back of the stimulus. Q: How you are reading the dollar-euro equation because that will have important ramifications for all markets?
A: I actually feel once again that euro is close to a low. There are a lot of concerns and the shorts are quite huge when you look at open interest. I would like to see a little bit of support coming to the market. It's going to be interesting over the weekend obviously with the Greek elections coming and there is going to be a lot of nervousness.
If anything is there, I think the euro might find some value. 1.2350 is the key on the downside to which I would probably look at. One quick note, in the lead up to Greece, keep an eye on gold because that could have a reasonable spike over next 24 hours.