Oil rallies on demand forecast, gold slips

International Energy Agency sends oil higher

Oil spent much of Friday on the back foot as the US dollar surged. However, a report from the International Energy Agency (IEA) stating the demand would continue to recover and urging OPEC+ to pump more to contain price increases sent oil higher. Brent crude finished 0.30% higher at USD72.60 a barrel, with WTI climbing by 1.0% to USD70.80 a barrel.

Another bullish factor adding to the bullish outlook is the oil futures prompt spread. That widened notably last week, suggesting that immediate oil demand is increasing.

The rally has continued in Asia, where liquidity has been thinned by a China holiday. Brent crude has risen 0.55% to USD73.00 a barrel, with WTI rallying by 0.60% to USD71.20 a barrel.

Brent crude has nearby resistance at USD73.30, followed by USD76.00 a barrel, and only the failure of USD70.00 a barrel undermines the bullish outlook. WTI has resistance at USD72.50, followed by USD75.00 a barrel. Only a fall through USD68.00 a barrel changes its bullish outlook.

That oil has rallied so significantly in the face of prominent US dollar strength suggests the rally has plenty left in it, as does the widening of the futures curve backwardation.

Gold wilts on US dollar strength

Gold endured a torrid session on Friday, with the US dollar rally sending it 1.10% lower to USD1878.00 an ounce. Things have continued in the same vein today, with gold retreating another 0.72% to USD1864.25 an ounce.

Although US dollar strength explains the capitulation on Friday, I highly suspect that Bitcoin’s impressive 9.0% weekend rally and a non-event G-7 have contributed to its demise this morning. The price action suggests that the speculative market was heavily long as of Friday and that the culling of positioning continues in Asia today.

Gold has support at USD1856.00 an ounce, but the USD1840.00 to USD1845.00 zone must hold to keep the bullish case on track. That contains a series of previous daily highs and the 200-day moving average (DMA). Failure means that gold is undergoing a much deeper correction that could extend to its 100-DMA at USD1800.00 an ounce. Rallies will be limited to USD1880.00 and USD1900.00 an ounce ahead of the FOMC.

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

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