Crude to average $60, gold $1000 next year: SocGen

The recent drop in crude oil was a result of OPEC deciding to increase its production, with a strong US dollar and Chinese economic weakness further adding to its woes, says commodity expert Mark Keenan of Societe Generale.In an interview with CNBC-TV18, Keenan said he expects Brent crude prices to slide further in this quarter before bouncing back to trade higher from current levels.For the next year, he sees crude averaging about USD 60 per barrel.But he's got bad news for gold. "Gold's ability as a safe haven has disappointed. Last year, it fell despite a lot of uncertainty. It is likely to continue to fall," he said."We see gold at USD 1050 per ounce toward the end of the year. It may average USD 1,000 next year."Below is the transcript of the interview on CNBC-TV18.Ekta: NYMEX it is now at almost 6.5 year lows, brent crude now seems to be comfortably trading below USD 50 per barrel. What is happening in terms of the production as well as the supply situation globally for brent crude especially and how much lower do you think it can go and where do you think it can average?A: The last month or the month of July was a very bad month for the asset classes as a whole with nearly every single commodity are falling by a significant amount. The only commodity that was up was lean hog. Oil was specifically impacted by a fresh bounce of the news out of Organisation of the Petroleum Exporting Countries (OPEC) for the first time in quite some months. I am seeing a significant increase in production specifically from Saudi Arabia and Iraq. The reason why this was so important and why it had such a negative impact on prices is that the markets had largely been focusing on the growth from the shale production out of the US for the most part of this year. It has become progressively more complicated to try and unravel how the rig count numbers have been matching up with production numbers. So, when we have this very clear sign that OPEC production is really taking off despite these low prices it was taken very negatively. That combined with the rising dollar, pessimism out of China, a wade across the entire asset class in terms of sentiment and in terms of price. Where we are going to go? We have a period ahead of us which is traditionally a seasonally weak period. Until October this is the finally maintenance period we expect prices to remain soft and to possibly move lower during this time. However, the good news with us is that Q4 and Q1 of 2016 are we expect oil both of them WTI and Brent to be significantly higher than we are now. So this forthcoming period might be a very good time to ease into a long position slowly to try and build in an average entry price with a view of the excessing that towards the end of the year.Anuj: Do you think OPEC has know really lost the pricing power completely because that was one debate which was doing the round for last two or three months that it is North America now which has pricing power and in that case should we be prepared to see USD 40-50 per barrel crude as normal more than aberration?A: The first part of your question, yes, for the most part and certainly to what we have been used to OPEC has lost its importance in the market. It is very similar to 1985 when the North Sea oil production came into world markets and OPEC took a bit of a step back into terms of its importance and clout in regulating prices. Going forward the US or the most expensive production now of any meaningful volume is US shale and that will largely be the new swing produce and pricing mechanism for the foreseeable future. It makes sense this is how commodity market should work. OPEC and the region are very low cost producers and they shouldn’t be controlling the market price in terms of restricting supply when you have such significant sources of oil coming on stream and other parts of the world. So it will be different. This volatility that we are seeing now is really the world getting used to how the US is going to take that place as a key regulator of global oil prices and until that becomes clearer we can expect these gyrations and these headline driven moves to continue for the short-term.Ekta: So at the end of the year where do you see Brent crude prices? A: For Q4, we see both of them up about USD 6 or 7 from where we are now. I mean Brent averaging about USD 60 per barrel for 2016. So, just sub 60 for the end of the year. About USD 6 dollars above the forward curve. So despite the very steep contango that often precludes long-only investments from generating the returns that you would think I would be implied by flat price movements, there is quite some value in it so, around USD 6-7 [more] by Q4, and then possibly USD 7 to 8 for the average of next year.Anuj: What about gold because for last six months to one year all we have heard is that demise of gold as safe haven. It is showing signs of life now for last two weeks or so what is your call on the precious metals? A: Pathetic signs of life as usual with gold. Its ability to respond to traditional periods where a safe haven would be used over the last year even longer than that has continued to disappoint market participants. It is not lack of any degree of diversify in terms of things that it should respond to. If you remember going back last year we had a number of things. We had a war between Russia and Ukraine. We had crisis in Greece resurfacing. We had emerging market issues, we had many things and during this time gold did nothing. It fell, it fell 10 percent last year and we had pockets of strength a percent or two percent perhaps and it was very quickly solved and it is very swiftly moved lower. We see this exactly the same situation. We have had a little bit of a move up on the currency devaluation in China. In large part it has viewed as a selling opportunity. We suggest selling it if you are holding gold, get out of it. If you can go short gold, go short gold. If you can’t go short gold then short silver as a proxy for that and prices will continue to fall. They fall to a USD 1,050 in Q4 of this year and I will average around USD a 1,000 next year so, overall very bearish outlook.