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Oil surges, lower US yields boost gold

Oil prices soar overnight

Russian President Putin shocked the energy markets on Wednesday when he directed that payments for Russian natural gas by “unfriendly nations” must be paid for in roubles. The announcement and the full closure of the Caspian Pipeline Consortium’s (CPC) pipeline by Russia sent European natural gas prices 30% higher, and also aggressively lifted crude prices, helped by lower official US Crude Inventories. Brent crude finished 6.05% higher at USD 121.40 a barrel, and WTI finished 5.20% higher at USD 114.35 a barrel.

Asia did its usual today, walked in, and started buying oil aggressively, sending prices 2.0% higher initially. However, in the last hour, oil prices have reversed sharply and are in negative territory now. I cannot see any reason for the reversal on the news wires. Brent crude is 0.60% lower at USD 120.80, and WTI is 0.55% lower at USD 113.85 a barrel.

Brent crude spiked to USD 124.00 overnight, but its lower close suggests that it lacks the momentum to move much higher in the short term. Any sort of Russian headline could change that of course, but I am still content to call Brent and WTI in a roughly USD 100.00 to USD 120.00 a barrel range for now.

The CPC closure will make an already tight market, even tighter, and will support dips now. On the other side of the equation, Russia holds all the cards on the natural gas front in the short-term – the long-term is a very different story – and contracts or not, Europe will probably have to accommodate Mr Putin after some grumbling and gnashing of teeth. This story could subside from the headlines quite quickly.

Gold rises with lower US yields

Gold rose by 1.23% to USD 1944.50 an ounce overnight, as a well-supported 20-year US bond auction pushed the US curve lower. It is likely to be a temporary respite for gold, though, with US bond futures already retracing lower this morning in Asia. That has lifted the US dollar and pushed gold down slightly by 0.25% to USD 1939.50 an ounce.

The risks are increasingly skewed to the downside, especially if the US dollar decides to rally in sympathy with higher US yields. Gold has well-denoted resistance between USD 1940.00 and USD 1950.00 now, followed by USD 1960.00 an ounce. Support lies at USD 1900.00, and failure will spark a retest of major support at USD 1880.00 an ounce. Failure of USD 1880.00 will likely spark a rapid capitulation trade targeting the low USD 1800s.

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 [4]

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was 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 and Channel News Asia as well as in leading print publications such as 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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