Oil extends losses on lockdown concerns
Oil prices resumed the sell-off on Monday, building on last week’s steep losses amid growing concerns over future demand as fresh lockdown restrictions are implemented in Europe.
France reimposed lockdown restrictions last week as a third wave of covid surged through the country. Germany is also due to see lockdown conditions extended into a fifth straight month. Rising cases combined with a sluggish vaccine programme in Europe highlight the challenges that remain in the fight against the virus. Oil demand is still a long way off pre-pandemic levels, and prices are currently being propped up by significant output cuts in place.
Data on Friday has added to oil’s woes, with the Baker Hughes rig count revealing an increase of nine rigs to 411. This is the highest number since April last year, as US drillers look to capitalise on the recent price spike.
The rig count is considered a useful guide to future production. As US driller numbers rise and OPEC+ looks to increase production from next month, oil could struggle to move much higher beyond its current levels.
Gold looks lower ahead of Powell
Gold is coming under pressure in early trade, despite the risk-off tone to the market and yields easing lower.
While the benchmark US 10-year treasury yield remains under 1.70%, gold buyers are still reluctant to place bullish trades ahead of Federal Reserve Chair Jerome Powell’s speech later today.
The technical picture favours sellers after gold failed to break above its descending trend line dating back to early January. Support is currently being tested at USD 1730, which is the 50 SMA on the four-hour chart. A break-through here could bring USD1700 into focus. On the flip side, any move higher would need to clear USD1745, which is the descending trend line, in order to target USD1755.