Will OPEC meeting affect oil prices?

OPEC and economic fears weigh on oil

Another whose upward momentum is stalling is oil. The California lockdowns, and fears that OPEC+ will taper production before consumption has achieved escape velocity, saw Brent crude and WTI retreat overnight. Brent crude fell by 2.20% to USD 42.30 a barrel, and WTI fell 2.30% to USD 39.70 a barrel. In Asia today, the retreat continues, with both contracts falling around 1.0% to USD 41.85 and USD 39.20 a barrel respectively.

The OPEC monitoring committee has a tough decision to make regarding recommending the extension for the headline production cuts. Renewed lockdowns in the US will almost certainly hit oil consumption, and the sideways price action by oil over the past month suggests that we are at equilibrium levels for now. Assuming they can get the OPEC+ buy-in, erring on the side of caution might be the sensible decision. However, they will note the difficulty markets have in weaning themselves of artificial price supports if left in place too long.

Both Brent crude and WTI are now smack in the middle again of their one-month ranges. If momentum is indeed fading, it will be crucial that critical supports at USD 40.00 a barrel for Brent crude, and USD 38.00 a barrel for WTI, both holds. A failure this week will herald a deeper correction is upon markets. Likely, though, oil’s fate will be mostly decided by events in other asset classes.

Ominous signs for bullish gold positioning

Last night should have been gold’s day, with economic and geopolitical concerns ratcheting higher, and equity markets beating a hasty retreat. Instead, all gold could do was cling on to the USD 1800.00 an ounce region, finishing 0.20% higher at USD 1802.50 an ounce.

Gold did probe higher overnight, reaching USD 1813.00 an ounce before moving lower with equity markets. That fact is telling in that gold’s longevity at these levels has yet to be tested in a stock market sell-off. In recent months, a sharp move lower buy equity markets has seen the same price action on gold.

Notably, gold has now traced out a series of lower highs since the initial spike to USD 1819.00 an ounce after the USD 1800.00 level gave away. It implies that momentum is also stalling in the short-term. Worryingly, gold has treated to USD 1797.00 an ounce in Asia today, as regional stocks fall.

Gold has support between USD 1780.00 and USD 1790.00 an ounce. A failure of this support region sets up a much deeper correction, possibly as far as USD 1750.00 an ounce. I will be much more confident about gold’s near-term upward momentum, if it survives a material intra-day retreat by equity markets.

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, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was 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 and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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