Oil stages a surprise rally
Official US crude inventories followed the API data from the day before and posted a surprise increase in stocks. However, instead of prices falling, oil rallied aggressively. Brent crude leapt 5.25% to USD 72.225 a barrel, and WTI rocketed 5.80% higher to USD 70.25 a barrel. Some long covering sees both contracts ease by 30 cents a barrel in another dull Asian session.
I must admit that the rally caught me completely flat-footed, especially its scale. Notably, there were no surprises within the distillate or gasoline indexes to support the jump in prices either. I can only surmise that with risk sentiment climbing in New York anyway elsewhere, that some gold old-fashioned FOMO fast-money drove the rally. Asian physical buyers who had been holding out for deeper bargains may also have needed to scramble in the overnight session.
Having said that, I have previously stated that I believed that any material sell-off would be short in duration. I didn’t realise it would be that material and that short in duration!
Unless we get another massive wave of delta-variant risk-off sentiment sweeping markets, the lows seen by oil this week are likely to be the lows seen for some time. The world remains on a recovery track, albeit asymmetrically, supporting oil’s consumption fundamentals for the rest of 2022.
Brent crude should find plenty of willing buyers now on any dips to USD 70.00 and USD 68.00 a barrel. Similarly, any retreat by WTI below USD 68.00 a barrel should find plenty of support. The upside remains less clear in the short-term, with resistance now at USD 74.00 and USD 72.00 a barrel, respectively.
Gold continues to fade
A rise in US long-dated bond yields weighed on gold prices overnight, as did a reduction in risk sentiment, with the delta fears of Monday continuing to ebb in North America overnight. Gold fell 0.40% to USD 1803.50 an ounce in a non-descript session and have edged lower to USD 1799.00 an ounce in Asia.
With Asian stock markets performing strongly today, it seems clear that regional investors are quickly rotating out of defensive gold positions and back into equities. That is weighing on gold prices, even if it is not yet enough to flip gold into a temporary bear market.
The yellow metal has taken a back seat this week, with volatility far higher in other asset classes. In the bigger picture, gold remains confined to a broader trading range bound by its 100 and 200-DMAs at USD 1790.00 and USD 1824.00 an ounce, respectively. A daily close above or below either of those levels is required to signal gold’s next directional move.
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