Oil pulls back, gold eyes FOMC

Oil slips ahead of OPEC+ but no increase expected

Oil prices are pulling back a little again today after recovering over the past three sessions. There remains plenty of reasons to be bullish on the oil market at the minute, not least the seeming unwillingness of OPEC+ to ramp up the pace of monthly output increases in the face of strong demand, a tight market and high prices.

Who knows, maybe they’ll surprise us on Thursday and dial it up a little, even temporarily, but I doubt it. They’ve been through a period of low prices and with US shale not responding particularly quickly to these higher prices as their priorities have shifted, the prospect of high but not recessionary prices may appeal to many.

Especially when demand could soften over the winter months if Covid does trigger restrictions or more cautious behaviour. One thing that could take some of the froth out of the market is Russia sending more natural gas supplies to Europe as Vladimir Putin recently suggested they are prepared to do. That could reduce demand for it as an energy alternative but ultimately, it’s OPEC+ that hold the key to lower prices.

Gold looking vulnerable ahead of FOMC

Gold is a little lower this morning as it continues to struggle to recapture USD 1,800 despite numerous attempts to break and hold above that key level to the upside. A close above here would be a big statement with a break of USD 1,810 then potentially setting the stage for greater gains to the upside.

But with the Fed probably announcing a taper tomorrow and maybe even laying the groundwork for rate hikes later next year, in keeping with hawkish shifts from central banks around the world in recent weeks and months, it may struggle. A stronger dollar could pile further pressure on the yellow metal as it already appears to have entered into a corrective pattern.

Gold broke below a rising channel on Friday as the price plunged after the US data and it’s failed to break back into it this week. It’s rebounded but only as far as the 50 and 61.8 fib levels, which fall around the lower end of the channel. A failure here, as we appear to be seeing, leaves it vulnerable to another run at USD 1,770.

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