Expect Brent to hold current levels; bullish on gold: UBS

Crude prices have seen some resurgence. In an interview to CNBC-TV18, Tom Price, UBS Equities Research says crude prices should hold current levels, over USD 90 per barrel for WTI and USD 115 per barrel for Brent.

He is pretty bullish on gold. "We have got a high price point of USD 1,900 an ounce about the middle of next year," he adds. Commodity corner: Experts bullish on gold, copper, nickel Below is the edited transcript of his interview with CNBC-TV18's Mitali Mukherjee and Sonia Shenoy. Q: What have you read into the developments? What kind of impact do you think we could be beginning to see on crude prices? A: That is the more supply side dramas mainly. Year 2012 fetches supply side dramas across crude oil world. We had some wars in the Sudan, sanctions in Iran and now we are seeing some air strike at the Gaza Strip. So, lots of dramas across the supply side event. Ofcourse that creates risk, it makes people think about lifts in both the Brent and WTI. Q: What is the current rate reflecting? What do you think it is factoring in? Is this the worst of it or do you think we could see quite an escalation in crude prices in the next couple of days and weeks? A: I think USD 115 is a number that we were expecting prices to get to by Q4. It has just lurched a little bit higher in the last few weeks on this tension. We are expecting it to stay at roughly these levels going into the first half next year. You have to turn your mind back to demand side drivers now. Probably the biggest drivers are where does China go from this point on? If their economic activity starts to stabilse and lift along seasonal basis going into 2013, it could be a driver for oil prices. With US elections now virtually done, it looks like they are getting down to some sort of stable growth. That could see the very high inventories draw down and be a support for WTI. So, in terms of longer term sustainable drivers for oil, it is really China and the US that we are thinking about. It should hold prices at least at current levels, about USD 90 plus for WTI and USD 115 for Brent. Q: What kind of cool off are you expecting in these prices? The recent slip in crude prices came as a positive to markets like ours. Are you saying they are moving into a higher trajectory again? A: No, I think we are going into a quieter period just in the next month or two in western world countries. That should see prices hold at their current levels. If there is a positive demand side lift going into 2013, there might be some upside risk. _PAGEBREAK_ Q: What exactly is happening with hedge fund activity though? Reports seem to indicate that the last eight week there has been little bit of selling back to back and hedge funds seem to generally becoming quite cautious on many commodities now. A: We are seeing some selling in copper by hedge funds. They are pulling out of the trade. There has been some negative data out of China in the last month. I think that has inspired that. But our view is China is basically very short copper at this stage. They are running a very high semi-manufacturing production rates. The market seems to be focused more on bonded warehouse copper stocks and collateral metal. But the fact is the metal is actually available to China, at the moment, at very low price. That supports prices at about USD 3.50 per pound. So, in terms of fundamentals, that seems to be a fairly support to trade. Other base metals appear to be very oversupplied at the moment with some downside risks. Aluminium seems to be fairly capped at 90 cents per pound, zinc at about the same level. The most active period for zinc, which is Q3, is past. So, I would say there is a fairly subdued trade coming through for that as well over the next quarter or so. So, really copper is the one that stands out. Hedge fund selling there seems to be a bit of a waste of time. The bulk trades are probably the ones that we are trying to get clients to think about more iron ore and met coal. We are moving in to seasonal restocking for those raw materials for the steel industry. That tends to be a bit of tight. I have heard about some hedge fund selling in iron ore equities, but I do not think that is going to last for too long. As we go into Q1, iron ore tends to be most buoyant in Q1 of the calendar year. Q: What about gold? How are you calling that for 2013? A: UBS is pretty bullish on gold. We have got a high price point of USD 1,900 an ounce about the middle of next year. It is floundering at USD 1,730 an ounce at the moment. I think probably the strongest case for gold, over the next couple of months, will relate to the fiscal cliff concern in the US. If the US government moves to resolve that proactively, which will obviously involve some sort of package, something like QE, that could be supportive for gold. So that is one point about supportive case. Ongoing grief in the Euro zone and support of the marginal economies there also creates a type of inflationary risk. That is supportive of gold. They really are two key tenants for a higher gold price over the next six months. But in the absence of that and if you have a US economic recovery over the period, that undermines the need for QE or support beyond the fiscal cliff resolution then gold might carry some downside risk. That number might be a bit higher for next year.