Oil dips, gold surges higher

Delta and Norway send oil lower

Oil’s rally of the past week was predicated on two major events, the shuttering of US production due to Hurricane Delta, and the Norwegian oil workers strike. Both of those pillars look to have been removed, with oil prices quickly correcting lower. In the US, Hurricane Delta bought a lot of rain, but its winds weakened and were not destructive. Production remains mostly offline but is likely to return quickly. On Friday evening, striking Norwegian oil workers reached a new wage agreement, meaning 1 million barrels per day of production immediately returns to international markets. Combined with a seemingly rapid return of the Libyan output, the supply squeeze looks set to end sooner rather than later.

Brent crude fell 1.50% to USD42.80 a barrel on Friday, immediately falling another 0.65% in Asia to USD42.50 a barrel today. That leaves Brent crude just above critical support formed by its 100 and 200-day moving averages (DMA) at USD42.30 a barrel. A loss of that support signals more losses targeting USD41.00 a barrel.

A weakening Hurricane Delta saw WTI fall 2.0% to USD40.55 a barrel on Friday, and immediately weaken another 0.70% to USD40.25 a barrel in Asia this morning. WTI’s 100-DMA sits at USD38.85 a barrel this morning, just below the session’s low. Failure opens deeper losses to its 200-DMA at USD38.50 a barrel.

Asian buyers are content to play a waiting game this morning, seeing no need to chase the market now that the drivers of last week’s price squeeze have been removed. With normality set to return to oil markets, the chronic oversupply/weak demand narrative should reassert itself, and oil likely will ignore a weaker US dollar and move south this week.

 

Gold stages an impressive rally

Gold surged higher on Friday, lifted by US stimulus hopes and a weaker US dollar. Gold rallied 1.95% to USD1930.00 as momentum traders finally reappeared, notably as gold broke USD1905.00 an ounce, and more critical resistance at USD1920.00 an ounce. The return of fast money to the long gold trade has been a while coming, with the significant risk to gold’s rally now being a US fiscal stimulus disappointment. Fast money by its nature, heads for the exit door as fast as it enters.

With the FOMO trade in full swing, gold’s next resistance level is at USD1938.50 an ounce, its 50-DMA. That is followed by USD1975.00 an ounce. Initial support is at USD1920.00 an ounce.

Gold has eased to USD1927.50 an ounce this morning, as Asian investors seem uninterested in joining the New York fast money herd, wary of headline risk out of Washington DC. However, the finish by gold at its highs on Friday and its firmness today are positive technical developments that should signal further gains in the week ahead.

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