Oil prices muted, gold grinds higher on COVID

By recent standards, oil’s price action overnight flatlined, supported by very narrow daily ranges. Brent crude fell slightly by 0.25% to $41.20 a barrel, with WTI rising 0.50% to $39.80 a barrel in directionless trading. Both contracts remain comfortably ensconced in the middle of their respective monthly ranges, as outlined yesterday.

Covid-19 nerves are definitely capping the US-centric WTI contract. API Crude Inventories fell by 8.156 million barrels overnight, a massive deviation from the expected climb of 1.75 million barrels. In times past, that would have sent WTI soaring. Instead, we had a narrow range day and finished almost unchanged.

A substantial data calendar could yet spark WTI into life, but for now, the reality of the effects of Covid-19 on hoped-for oil consumption seems to have finally hit home. One positive is that WTI has not given back its recent gains, at least not yet.

Brent crude has also maintained its gains, but two factors are tempering further rallies. Firstly, Libyan oil production looks set to resume, potentially adding 1 million barrels a day to international markets. Secondly, the word on the street is that Saudi Arabia and Russia are not inclined to extend the extra OPEC+ production cuts. This means that those cuts will enter a tapering phase at the end of the month.

Overall, the spectre of a renewed US slowdown is tempering exuberance in oil markets. But as long as Asia and Europe continue to recover, there should be underlying physical demand to support any dips in prices.

Taking a look at gold, the twin spectres of China’s Hong Kong security law, and Covid-19 fears in the US, supported gold prices into the quarter-end. Gold ground 0.45% higher to USD1780.80 an ounce overnight, an eight-year high and within shouting distance of the USD1800.00 an ounce resistance zone.

Gold has edged higher in Asia to USD1782.70 an ounce as details of the Hong Kong security law are released. Disquiet across the region will continue to support gold on any dip below USD1780.00 an ounce in Asia today.

The yellow metal is now within shouting distance of the multi-month resistance zone at USD1800.00 an ounce, which dates back to the years 2011/2012. Technical resistance is formidable here, however, and gold is lacking the momentum, for now, to challenge it seriously.

That said, only a fall below USD1740.00 an ounce will challenge the bullish narrative. Most likely, gold will content itself to trade between USD1760.00 and USD1790.00 over the next few sessions, as it gathers its forces for the assault.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst - Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia and the New York Times. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley