Oil slides on Covid, gold edges up

Oil in full retreat in Asia

Oil prices have gapped lower in Asia as the South African variant sparks growth fears, sending a wave of selling through Asian energy markets. Although gas and coal prices are holding steady, oil prices have tumbled. Brent crude has fallen 1.85% to USD 80.70 a barrel, and WTI has tumbled 2.0% lower to USD 76.40 a barrel. Oil is likely to find sellers on any intraday rally today and is in danger of extending losses once Europe and North American markets resume.

Brent crude has resistance at USD 83.00 which looks unlikely to be retested over the next few sessions. Brent could potentially retest the USD 78.00 area this afternoon, although I expect the 100-day moving average at USD 77.00 to hold for now. WTI’s triple top at USD 81.30 is now formidable resistance and a fall to USD 75.00 a barrel area cannot be ruled out. The 100-DMA is critical support, today at USD 74.40.

Depending on how this virus-led sell-off evolves, and how concerned the WHO is of it, the calculations surrounding the OPEC+ meeting next week could change. OPEC+ has stated repeatedly that one area of caution was the resurgence of Covid-19 eroding oil demand as the grouping raises production. One takeout for sure is that OPEC+ will not increase production above its previously agreed 400,000 bpd target next week, despite the noise from its major customers. At this stage, I do not believe they will look to reign in production unless the market situation really deteriorates next week, and oil prices experience a much deeper slump.

Gold edges higher

Gold was quiet overnight due to a US holiday and has been surprisingly muted today as risk aversion waves of selling sweep other asset classes in Asia. Gold has risen just 0.50% to USD 1797.20 an ounce. Part of the reason is likely because traders going long gold in recent times have been so badly whipsawed. The twice burnt mentality means gold maintains its range between USD 1780.00 and USD 1810.00 with a bias to the upside.

If US yields tumble today on haven buying, gold could potentially retest USD 1800.00 and USD 1810.00 an ounce. It has moved clear of the 50-day, 100-day, and 200-day moving averages are clumped together between USD 1789.50 and USD 1793.50 an ounce which form initial support, followed by USD 1880.00 an ounce.

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