Short crude; mkt oversupply continues: Fat Prophets

In an interview with CNBC-TV18, David Lennox of Fat Prophets outlined his view on various commodities such as crude oil and base metals.Below is the transcript of David Lennox’s interview with Latha Venkatesh and Ekta Batra on CNBC-TV18.Latha: Give us an idea on crude. It looks like two steps backwards, three steps forward for crude, or rather the other way around. It has been receding. What would be a quarterly and a monthly trajectory for crude prices?A: At this stage, we would suggest that you probably still need to be looking at shorting the crude market, because all the factors that we have seen in terms of driving the price down over the last several months are still in fact in play. They have diminished a little bit. We have seen numbers out of Organisation of Petroleum Exporting Countries (OPEC) suggesting that their production to the end of August has just come up a little bit. And of course, we are seeing numbers out of the US which would suggest the same. However, when you look at the overall demand and supply situation, we do think that even though we have seen a shrinking in the surplus of supply, it still stands at probably around 1.6-1.7 million barrels. And that with the inventories that we see in the US would suggest to us that the oil price still has some chance of weakening over the next few days.Ekta: I wanted to ask you about copper prices. How have they moved post the Chinese purchase managers’ index (PMI) and how much lower do you think it could go to?A: Certainly, the flash PMI we saw coming out of China at 47 indicating that their industrial sector is still contracting was not a good signal for the broader commodities let alone copper. So, the markets will be now, very careful to watch what is happening inside China. We have seen them stimulate a couple of times and that at this point has not, as yet, taken grasp.So, we would be thinking that again on the commodities side, if we continue to see weak data coming out of China and the Chinese authorities continuing to stimulate, then we will perhaps see further falls in the commodity prices and copper will be where those hit hard. So, at this point, we are very careful as to where we are investing in terms of the commodity space. We are not looking at copper at this point in time, we are looking at lead and zinc. And we think that all eyes continue to be on China in terms of where their growth is going.