Oil retains bullish edge, gold struggling to recover losses

Near-term momentum with the oil bulls

A little profit taking on Wednesday hasn’t deterred oil bulls, with WTI waltzing over the $40 barrier this morning.

While longer term risks remain tilted to the downside, it’s impossible to ignore the fact that outages in Norway and the Gulf of Mexico are supportive for prices, especially when in the case of the former we don’t know how long it will last and the latter, how severe the damage suffered will be.

We’re not talking small numbers either, 330,000 barrels equivalent of lost output in Norway. It’s unknown how long the Norweigen strikes will last but should a resolution not soon be found, the outages could reach up to 966,000 barrels of oil equivalent per day by 14 October, around a quarter of total Norweigen output.

Hurricane Delta – now a category two storm and still strengthening – will reach the coast on Friday and the extent of the damage should soon be known. The Gulf represents 17% of US output, a substantial number of potential lost output if the storm strengthens and forces more evacuations. With eight weeks of Hurricane season still to run, it’s a heavy cost on the industry.

Gold struggling to recover

Gold has struggled to recover the losses from Tuesday, with the yellow metal lingering below $1,900. The downtrend since August remains very much intact, despite the recovery since late September. A break through this weeks highs may make things more interesting though and could represent a momentum shift.

While I still think the decline since August is a corrective action, with more upside to come in the medium term, I remain unconvinced that the correction has run its course. There’s clear support below around $1,850, if this goes then $1,800 could quickly come under pressure.

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.

Craig Erlam

Craig Erlam

Senior Market Analyst - UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a Market Analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam