Oil slides, gold finds support

Oil crushed under pressure of lockdowns

Oil is getting crushed once again, with the latest Covid restrictions in Europe taking a heavy toll on crude prices. There’s a massive imbalance forming in the supply/demand outlook which is weighing heavily at the moment, as we await a response from OPEC+.

The group has previously signaled a willingness to respond in the event of more lockdowns and the time has come for just that. Market pressures are not going to ease, even if prior warnings cushion the blow to an extent.

Brent and WTI have both pulled off their lows this morning as sentiment in financial markets has improved but they are coming off a low base. Brent is almost 20% lower than it was a couple of weeks ago and the lowest it’s been since mid-May.

If OPEC+ don’t respond soon, the pressure will continue to increase and both Brent and WTI could find themselves closing in on USD30 a barrel once again. The group can only sustain so much and these lockdowns are only going to spread further. It’s not a case of if they’ll push back production increases, it’s now a case of when.

In terms of notable levels, the next major support for WTI is USD33, with USD30 being a major psychological level below that. For Brent, USD36 represents a big test – one it passed earlier today – but USD33 is the bigger challenge.

Any rallies may be tested by the sellers and, should it get that far, USD37 would be a major barrier to the upside in WTI, with USD40 posing a similar challenge for Brent.

Gold support passes first test

Gold has found some support in recent days around the late/post-summer lows. The region around USD1,850-1,860 has been key for the yellow metal during that period and a break of it would be a major psychological blow in the near term.

Nothing has changed about my medium to long term outlook, as far as gold is concerned, but the downside risks remain significant and election uncertainty will only add to that. Covid is sucking optimism out of these markets and weighing heavily on risk assets and gold is being taken down with it.

A move back above USD1,900 would be a positive move for the yellow metal but I don’t think it fundamentally changes the outlook. It’s one barrier to the upside but only a move above USD1,930 would represent a significant shift in momentum.

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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 SKY News. 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
Craig Erlam

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