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.
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