Oil rises on vaccines, gold consolidates

Oil continues to rise on consumption hopes

Oil shrugged off the profit-taking seen in other asset classes on Friday and continued to consolidate at the top of its November ranges. Hopes that vaccines will return the world to a semblance of normality in 2021 continue to drive consumption forecasts higher, supporting oil which has also seen a rise in speculative long futures positioning. Brent crude rose 2.05% to USD45.10 barrel, and WTI rose 1.70% to USD42.40 a barrel on Friday.

After initially dropping following the postponement of the Singapore and Hong Kong travel bubble, oil has quickly recouped those losses and is now in positive territory. In the greater scheme of things, the Singapore/Hong Kong bubble was never going to change the picture for international travel materially, only vaccines can do that, and they now appear closer to reality. Oil’s next major risk point will be the full OPEC+ meeting next Monday. Although I am not expecting OPEC+ to change their intentions to raise production in 2021 now that Brent crude has risen to USD45.00 a barrel, there is still the possibility they may choose to “help” things along a bit and surprise markets with a reduced production schedule.

In Asia, both Brent crude and WTI have firmed slightly after weathering some initial selling. Brent crude has risen 10 cents to USD45.20 a barrel, but face longer-term resistance at USD46.50 a barrel, while initial support lies at USD44.00 a barrel. WTI has risen 10 cents to USD42.50 a barrel but faces formidable monthly resistance ahead of USD44.00 a barrel. Initial support lies at USD41.50 a barrel, followed by the 100-day moving average (DMA) at USD40.50 a barrel.


Gold continues to range

A slightly weaker US dollar on Friday was modestly supportive of gold, which rose 0.25% to USD1871.00 an ounce. In aimless trading today, gold has risen another 0.15% to USD1873.50 an ounce.

In the bigger picture, gold remains confined to a USD1850.00 to USD1900.00 an ounce range. Notably, gold fell through its ascending multi-month trendline support last week at USD1870.00 an ounce. It attempted but failed, to reclaim that support over the past two sessions, a bearish technical development.

The trendline now forms resistance, and today is at USD1876.50 an ounce. The 50-DMA follows that at USD1898.00 an ounce. The technical picture still suggests the risks for gold are skewed to the downside. If we see emergency vaccine approval in the next two weeks, those risks could magnify. A daily close below the USD1845.00/USD1850.00 an ounce support zone will signal deeper losses, initially targeting the 200-DMA at USD1795.00 an ounce today.

Although currency debasement in 2021, and the possibility of inflation, remote as it is, are supportive long-term factors for higher gold prices, there remains a real possibility we will see a material washout of long positioning first.

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 as well as in leading print publications including 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

Latest posts by Jeffrey Halley (see all)