CNBC: See crude at $75/bbl if $80/bbl breaks: Microsec Commerze
Shamik Bhose, Advisor–Commodity Markets, Microsec Commerze, expects crude to head lower from here. “This year, we have seen a low of USD 86 in February. In the last quarter of last year, we saw USD 86. It is a double bottom. It could go down further. We are looking at USD 86-87 per barrel and USD 92 per barrel as resistance. Once USD 80 per barrel is breached, we see a decline up to maybe USD 71-75 per barrel. If that is broken, then I see USD 5 incremental downside till USD 75 per barrel.”
Here is a verbatim transcript of the exclusive interview with Shamik Bhose on CNBC-TV18. Also watch the accompanying video.
Q: We have seen good gains in gold. Would you put your money here?
A: I would say so, because there is nowhere else as you pointed out. This week we have seen gold rallying from USD 830 per ounce all the way to almost USD 930 per ounce. It is not only a USD 100 or 12-13% rise, but if you see this year’s high of USD 1,035 per ounce and the low of USD 735 per ounce, it has actually retraced 60-61% from the lows after falling. So, that is one thing I am looking at in a long-term cyclical, secular uptrend.
Secondly, what is interesting is even though the dollar has strengthened against the euro and the USDX is strong, gold is still surging ahead. One reason is it is getting monetised because of the credit market crisis, the commercial paper freezing up, and short-term money could be coming in here.
Another reason could be that the dollar has gone up because of the deleveraging in the US economy, and safe haven buying of US Treasury Bills. When that stops, gold could really get on a bull run. That is why I think people are anticipating that and could be positioning themselves.
Q: What kind of a weekly close and what kind of highs do you see if prices do continue to rise like this?
A: Looking at supports around USD 890 per ounce and today’s USD 905 per ounce, I would say a surge past USD 930 per ounce sets up the USD 940-950 per ounce band. A surge past that on a weekly close looking at recent volatility sets up USD 975-980 per ounce, which has been a secondary low this year. Beyond that, USD 1,035 per ounce is the obvious case.
But assuming gold continues to get monetised, because of the debasement of currencies all around the world, I guess anything is possible because we have seen USD 100 per ounce moves every week for two-three weeks now.
Q: We have seen very sharp declines in crude. From USD 96 per barrel on Monday, we have seen a low of USD 81.13 per barrel today. Do you see USD 80 per barrel breaching soon?
A: This year we have seen a low of USD 86 per barrel in February. In last year’s last quarter we saw USD 86 per barrel. It is a double bottom. Once that has breached, we see a decline up to maybe USD 75 or USD 71 per barrel, which is the 2005 Hurricane Katrina high.
That is why I think looking at the demand destruction all around the world and the main engines of growth – China, India, Europe, America, all startled, there is real demand destruction and not just demand growth destruction, which as you have pointed out the metals are also pointing out. The shipping markets have collapsed.
All put together, crude oil could go down further. Looking at USD 86-87 and USD 92 per barrel as the resistance, I think people are now beginning to talk about USD 65 per barrel as well. But then the same people were talking about USD 170 per barrel when it was at USD 140 per barrel. So, you never know with these things.
Q: But what are you betting as a bottom? USD 80 per barrel is where OPEC also is comfortable. Do you think they would come out and cut production? What are your support levels?
A: Looking at resistance levels at USD 86 per barrel and USD 92, I am looking at support around USD 75, but USD 80 per barrel first. If that is broken, then I see a USD 5 incremental downside till USD 75 per barrel.
But I am primarily looking at support at the 2005 post Hurricane Katrina high of USD 71 per barrel, below USD 86 per barrel. I am looking at the chart and telling you this because you have no other map to go up to USD 147 per barrel and then come down to USD 82 per barrel in a matter of a few weeks. That is pretty volatile.
Q: We have seen very sharp declines in base metals as well. Do you see any kind of support or is it just a free fall from even these current levels?
A: When you are trading lead, zinc, nickel at 20% below marginal cost of production, you have to find support here. One reason we are going down is because of demand destruction and demand growth destruction. Another reason is dollar strengthening.
But the third reason is LME certified stocks. They have been going up for 6-12 months now. Nickel has come down from USD 51,000 per tonne to below USD 14,000 per tonne. This is improbable. You get murdered going up, and you get murdered going down.
I think copper to that extent has not come down so much. But if you look at the rise in aluminium stocks and copper stocks in LME, and if you look at the dollar strength, then this was waiting to happen. I think you should bottom out here.
But we said that about the Sensex at 12,500 and Dow Jones at 10,700 – those markets are trading 20-30% below those areas. So, what do you and I know? We will know a bottom when we find it.
But the way I see it, 20% below marginal cost of production means new production, and new mines will stop producing. But unfortunately, new supplies are coming into the market right now just as prices are going down. That is why demand destruction and demand growth destruction is being met by newer supplies and financial turmoil. So, the bottom could be another 10% down, maybe for copper it could be more than 20% down.
