SPR release triggers gains for oil
Oil delivered a resounding slap to the face of President Biden overnight after he finally announced his well-telegraphed intention to release oil from the SPR onto open markets. Totalling some 70 to 80 million barrels, if you include international partners joining the US, the releases will be spread over several months. With President Biden using most of his discretionary quota available last night from the SPR, the amounts released over the time frame will not be enough to materially impact oil prices, and clearly, markets also thought the same. European Covid-19 lockdown concerns may act as a cap to prices in the short-term, but again, will not structurally upset the bullish dynamics underpinning oil and energy prices. Additionally, OPEC+ does not have the capacity to radically increase production, even if they wanted to, which they don’t.
After the announcement, Brent crude leapt 3.50% higher, finishing at USD 82.25 a barrel. WTI jumped 2.65% higher, closing at USD 78.50 a barrel. In Asia, prices on both contracts have crept another 25 cents a barrel higher, with physical buyers perhaps ruing a missed opportunity earlier this week. Both contracts bottomed out above their 100-day moving averages and yesterday’s move likely signals the correction lower for oil is over.
Brent crude is testing resistance at USD 82.50 this morning which is followed by USD 83.25 a barrel. Support is distant at USD 78.60 and USD 77.60 a barrel with the 100-DMA lurking at USD 76.85. WTI has nearby resistance at USD 79.30 a barrel followed by USD 80.00 and USD 82.00 a barrel. Support is at USD 75.30 and USD 77.70 a barrel, followed by the 100-DMA at USD 74.30. A larger than 1 million barrel fall by US official Crude Inventories this evening could spark and jump in prices.
Gold’s bond torment continues
Gold’s awful week continues to go from bad to work, thanks to another jump higher by US 10-year, and especially, 30-year bond yields overnight. Combined with a rock-solid US dollar, gold was pummelled once again, falling 0.87% to USD 1789.00 an ounce, having tested the 50, 100 and 200 DMAs intraday. Some short-covering has once again lifted gold in Asia, climbing 0.35% to USD 1795.00 an ounce. The rally, however, looks strictly corrective.
Having been burnt so badly, even if US yields correct lower tonight ahead of the Thanksgiving holiday, investors are likely to be much more cautious at re-entering long positions. Momentum will be muted and that means that the USD 1835.00 to USD 1850.00 region will cap gains this week, although I will be surprised if we even get as far as USD 1810.00 an ounce. If US yields remain firm this week, gold will be vulnerable to further losses. The 50-day, 100-day, and 200-day moving averages are clumped together between USD 1789.30 and USD 1793,50 an ounce. A daily close below this zone signals deeper losses targeting USD 1760.00 an ounce with interim support at USD 1780.00.
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