Asia, once again, buys the oil dip

Oil prices held steady overnight, led by the perception of diminishing Ukraine risks and a positive meeting between the leaders of Saudi Arabia and the United Kingdom. The platitudes handed out to Boris Johnson in Riyadh conveniently overlook the fact that the Saudis are committed to OPEC+ and are not able to unilaterally boost production within that framework. But why let reality get in the way of a good story? A much higher US crude inventory print also helped cap intraday gains.

Brent crude finished 0.75% lower at USD 97.95 overnight, while WTI was unchanged at USD 95.00 a barrel. In Asia, sub-USD 100 prices have been irresistible once again, especially after Chinese indications that stimulus and economic support were on the way. Brent crude has risen 1.90% to USD 99.80 a barrel in Asia, with WTI adding 1.80% to USD 96.70.

While Asia, as huge net energy importers, continues to slurp up sub-USD 100 oil, European and US markets have been more circumspect. Oil remains vulnerable to another spike lower on positive Ukraine developments. Key support is at USD 96.00 or Brent crude and the USD 91.50 region for WTI. A concrete agreement emerging acceptable to both Presidents will see both break lower, and I can see another USD 10 drop thereafter for both. But an agreement will do nothing to restore Russian oil to global markets, nor will it encourage OPEC+ to pump more. After the euphoria dies down, I expect reality to reassert itself. Similarly, any negative developments will send oil sharply back above USD 100.00 a barrel and if anything, the prospect of a China stimulus will increase upside demand.

Gold rises modestly overnight

Gold tested USD 1900.00 overnight but shrugged off the FOMC rate hike and hawkish outlook, finishing the session 0.50% higher at USD 1927.50 an ounce, rising another 0.40% to USD 1935.00 in Asia. The sharp fall in the US dollar was the major reason for the gold rally, aided by an asinine reaction by US long-dated yields to the FOMC decision and outlook.

Looking at the price action overnight, I believe we are finally seeing some support coming back into the gold market after it was badly burnt on the rally through USD 2000.00. Just how concrete that support is, however, remains to be seen. I will be a lot more comfortable signalling a base in prices if gold can hold onto its gains if the US dollar rallies. Otherwise, the risk remains that this is a sucker’s rally.

Gold has resistance into USD 1960.00 an ounce, its previous capitulation point. Support lies at USD 1900.00 and then USD 1880.00 an ounce. A sustained failure of the latter signals gold’s torment continues and that USD 1800.00 an ounce beckons.

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