Oil gives up gains, gold vulnerable

Oil’s recovery hits an OPEC+ wall

Oil managed to claw back some losses overnight, but the price action was far from impressive. Brent crude left higher initially, climbing over 5.0% intra-day, but gave back almost all those gains to finish just 0.74% higher at USD 73.40 a barrel overnight. WTI fared slightly better, closing 2.75% higher at USD 70.05 a barrel, and reclaiming its 200-day moving average. (DMA) In Asia, both contracts have added another 0.80% to USD 73.95 and USD 70.55.

Brent crude appears to have a higher beta to the OPEC+ meeting, logical given it is an international pricing benchmark, whereas WTI is very much US-centric. Overnight, Russia said that other members had not contacted it regarding halting production increases at the full OPEC+ meeting later this week, and that seems to have capped Brent’s recovery. Things move quickly in OPEC+ circles though and I remain of the opinion that the odds of a temporary halt to production increases are well above 50% now, especially with OPEC+ compliance already above 100%, suggesting limited swing capacity anyway.

That said, Friday’s lows still feel like the bargain of the year if you were an oil buyer, speculative or physical. Rather than second-guessing OPEC+, I am content to watch from the sidelines from here, as oil markets will be more vulnerable than most omicron headlines and violent swings in sentiment. Heightened volatile means that long or short, your P and L can still be nought.

The respective 200-DMAs at USD 72.70 and USD 70.00 a barrel should provide some support, if for no reason that a fall to those points will send the relative strength indexes (RSIs) into oversold territory. Above, some resistance should be found at USD 77.00, and USD 74.00 a barrel respectively.

Gold looks unimpressive

Gold’s price action continues to underwhelm, as it finished the overnight session down 0.46% at USD 1785.00 an ounce, before eking out a 0.20% gain to USD 1788.50 an ounce in Asia. There are zero signs of any safe-haven bids emerging to shelter from virus volatility, and it is falling despite both US yields and the US dollar also falling. Gold has now closed below its 50,100 and 200 DMAs clustered between USD 1791.00 and USD 1792.50 an ounce.

Gold will have resistance at USD 1800.00 and USD 1815.00 to start the week, while yesterday’s spike to USD 1770.00 an ounce, will provide initial support. In between, gold may find some friends around USD 1780.00. Failure of USD 1770.00 signals a retest of USD 1760.00 and USD 1740.00 an ounce. Friends are what gold needs to find quickly though, and I do not rule out a move lower to USD 1720.00 this week, especially if the Non-Farms puts the Fed taper back in the spotlight and we have a lull in virus headlines.

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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