Crude price can touch $60/ bbl by year-end: Fat Prophets

Anuj: Do you think this rally is going to last in crude and what are the next targets that you are looking out for both Brent and West Texas Intermediate (WTI).

A: Certainly we have seen the crude price react to, as your previous guest suggested, some very positive news coming out of the US. We saw domestic production in that country drop to just over 9 million barrels which is the lowest number we have seen since that number picked in July at around 9.6 million barrels. So that gave the market a little bit of heat and of course we have had the CEO of Shell Company come out as well and suggest that because we have seen capital being withdrawn from the energy sector, future production is likely to be crimped and again that gave the market some heart and finally Russia, a couple of days ago started to suggest that perhaps producers should be looking at production numbers. And again we think that that certainly added heart to the sector and what we have seen is the combination of all that information, probably rallying into the crude price we have seen it come to now.

Ekta: what is your expectation from the October 21st Organisation of the Petroleum Exporting Countries (OPEC) meet and any ramification we could see on oil prices right then?

A: We are not expecting to see any change in inventories coming out of OPEC. They have been, I guess keeping that 31million barrel ceiling, it has been there for many-many months and we think that it will stay there. That seems to be the base number that supports current demand, so overall we are expecting not to see any reaction in the market at all from what I pick may or may not do. So we would be expecting certainly the market to be reacting more to what is happening in the US currency.

Anuj: What about metals rally up that we have seen over the last few days? Do you think that is sustainable as well?

A: Look, again, as with oil, the potential is for the downside risk to reappear across the commodity sector broadly. And that’s primarily because all the factors that have driven commodity prices now are apart from the movement in the US dollar still remain pretty much in place. We have seen some domestic cuts in oil, we have seen cut backs in base metals but broadly speaking, most production is still pretty much intact and we think that is primarily because in domestic terms as in producers in Australia, they still get very good copper prices and very good base metal prices in Australian dollar terms. So that is keeping production up. Demand however still looks quite shaky from our point of view and that is reinforced by the fact that the International Monetary Fund (IMF) is continuing to downgrade global growth. So overall we think that any rallies are going to be much muted in oil, gold and also the base metals, but the risks still remain to the downside.

Ekta: If you had to choose between any of the commodities by your end, by December 31st 2015 in terms of an incremental upside from current levels, which one would it be and what would your level be?

A: Look, certainly we think that the crude prices have got the greatest potential to rally; we think that the players in that market have got the opportunity to reduce production if they put their minds to it, whereas across most of the broader commodities, we have not got that same concentration of power on the supply side. So that does make it more difficult for any supply reactions. So we would be quite comfortable to say, look at the energy sector still, and we would be looking for Brent prices probably by year end, not much higher than about USD 60 per barrel.