OPEC+ surprise roils oil markets
OPEC+ have surprised before, and overnight they did it again. The grouping and Saudi Arabia declined to reduce their production cuts, sending oil markets spiralling higher. Both Brent crude and WTI finishing just shy of 5.0% higher at USD66.95 and USD64.00 a barrel, respectively.
With OPEC+ moving to a monthly assessment schedule, a lot more binary ambiguity has been introduced into oil markets. OPEC+’s decision overnight showed impressive unity and appeared to be a none-too subtle warning to markets about making assumptions. Next month’s meeting will almost certainly see further production cut reductions, but the physical demand shortfall will remain at elevated levels for now.
Both contracts have added 20 cents a barrel in muted Asian trading, with local importers again reluctant to chase markets higher in Asia. Brent crude has resistance at the overnight high and double top, followed by USD71.50 a barrel. Support is distant between USD62.00 and USD62.50 a barrel. WTI’s overnight high at USD62.00 a barrel is initial resistance. After that, the path is clear to v66.00 a barrel. The now-distant overnight low at USD60.55 a barrel is its first support.
Notably, the short-term relative strength indexes on both contracts remain in neutral territory. With no threat from overbought indicators, oil has the momentum to trade higher. What it does mean is that there should be a wall of buyers waiting on any material correction lower, and the corrections will be short-lived. OPEC+ has spoken, and the markets must listen.
Gold looks doomed
The rise in US yields overnight looks set to doom gold to more losses. Gold fell 0.78% to USD1697.50 an ounce overnight, as the rise in US yields spurred a rally in the US dollar. The higher US bond yields rise from here, the less appealing non-interest-bearing gold appears to be.
The falls overnight leave gold precariously perched above its 61.80% Fibonacci support at USD1689.00 an ounce. A weekly close below that level this evening will be a significant bearish technical signal. It will set gold up for deeper losses to the USD1600.00 an ounce region over next week.
Gold’s only hope of reprieve appears to be a much weaker than expected Non-Farm payrolls print this evening. That would take the heat out of the bond market, albeit temporarily.