Watch the interview of Matt Smith, Director - Commodity Research, ClipperData with Surabhi Upadhyay on CNBC-TV18, in which he shared his reading and outlook on commodity markets.
Below is the transcript of Matt Smith's interview with CNBC-TV18's Surabhi Upadhyay.Q: This has been happening for a while, today we don't have a knee jerk reaction like we had on gold on Friday and again on Monday, but the weakness is very persistent now, what do you make of it?
A: At least from the gold perspective it is very much in technical trading range now. People have been watching certain levels being broken and i think now everyone is expecting that we could well see it go down to USD 1080/ounce something like that. So, it is really very much a one way streak at the moment until we see some sort of surge back into the market to see some sort of natural rebound, but until that point we are likely to continue to see weakness.
Q: Beyond gold i also want to talk to you about crude because here's where technical and fundamental factors both clearly are at play. We have had a lot of news in the recent past, news about the Chinese slowdown, news about more Iraninan oil perhaps coming into the market and the debate that is going on whether US production is tapering or not and the Saudi's refusing to relent on production, where does this all lead crude oil to?
A: We have a number of different factors which have really sharply driven down prices in the last few weeks, as you mentioned relating to China - economic concerns there spurred by the drop in their equity markets which pressured prices lower. Everything that has developed relating to Greece, concerns there have weighed on the Euro.
We also have this situation where there is a stronger dollar coming through now as there is expectation of interest rate hikes coming in the US before the end of the year. So, all of these things have pressured crude lower. However at the same time there is strong demand for crude in the world. This year we are likely to see over 1 million barrels a day of growth, possibly 1.2 million barrels something like that and so there is strength there. The longer the prices stay low that will spur on further demand too. That then as you mentioned we are in a situation of technical's versus fundamentals and now we are sort of close to the USD 50 level for WTI, there is a level of support there but then we have got this stronger dollar which is really trying to push it through there. Q: So, are you suggesting that fundamentals are now evenly balanced for oil that we don't have more fundamental downside because of some of the demand increase that you spoke of?
A: I am not suggesting that per se. There is an imbalance at the moment. There is an oversupply of perhaps sort of 2 million barrels a day. But at some point that market is going to start to rebalance and we are already seeing signs of the demand side picking up because of the lower prices and we are also seeing supply side starting to temper too in terms of US production levelling off. So, by no means is the market balanced but at the same time we are also sort of USD 50-60 lower than we were during last year and so there has been this correction for this level which is pricing in much of that imbalance. The key thing is if we continue to see rising Organization of the Petroleum Exporting Countries (OPEC) production and that production finding its way into the global market not just say, Saudi's production being used for domestic needs at the moment. If we really see oversupply continuing to hit the global market and yes, we could see a test as the lows that we saw on Brent in January and the lows that we saw for West Texas Intermediate (WTI) in March around those sort of mid 40s level. So, that said the demand ?4:00 as we move towards the end of the year should really start to tighten back and balance up and we could well see prices higher by the end of the year than they are now and indeed we will.
Q: I am not sure if you look at base metals as well but in case you do we have seen a lot of this contagion spread across that complex as well. Tin, nickel, copper all those prices falling in the last couple of weeks. Is that just technical selling, sentimental selling or is there a lot of fundamental downside to some of these metals?
A: What we are seeing is it being driven initially sort of by the sentiment view because in times of credit crisis all assets correlate. So they have all being dragged down as we are seeing flight from commodity but the reason that we have seen that flight from commodity is because we are seeing economic weakness from the likes of China, these large consumers of these commodities and so there is some justification of why we are seeing downside there because even though we saw the Chinese economy grow seven percent for last quarter we are not going to see it grow at that pace next quarter and the impact of the falling equity market there. We have a reverse impacts on the sentiments that we are seeing sort of buoyed because of the rise in the equity market. So, further weakness is expected specifically when the Chinese economy is weighing on those base metal commodities.
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