Oil sinks on China concerns, gold tumbles

China worries push oil lower

An already nervous oil market saw prices slump overnight as a lack of two-way liquidity in futures markets exacerbated China’s consumption outlook as the lockdown of Shanghai was tightened. Brent crude fell by 8.20% to USD 109.50, while WTI fell by 8.15% to USD 103.45 a barrel. In Asia, the fierce fall in prices overnight was an irresistible temptation to regional buyers. They have pushed oil prices higher, Brent crude rising 1.80% to USD 111.40, and WTI climbing 1.65% to USD 105.20 a barrel.

 

China’s covid lockdowns will provide directional volatility to oil this week. More lockdowns equal lower prices and vice versa. However, I believe that oil prices can only fall so far, even if the talks in Turkey today yield some progress. Part of that reasoning lies with OPEC+, whose monthly meeting this week has been lost in noise elsewhere. Anxious not to upset the + in OPEC+, Russia, the rhetoric from Saudi Arabia and the UAE suggests little to no chance of increased production above the 400,000 bpd monthly increase previously agreed.

 

Crude stocks globally remain tight and in the bigger picture, I still believe that Brent crude will continue consolidating in a choppy and noisy USD 100.00 to USD 120.00 range, with WTI remaining in a broad USD 95.00 to USD 115.00 a barrel range.

 

Gold’s party looks over

Gold prices slumped overnight, as persistently high US yields and a strong US dollar took their toll. Gold tumbled by 1.80% to USD 1922.50 an ounce with gold bugs running for cover after two previous days of sideways price action and falling upward momentum. This very much characterises gold’s price action of late. A climb via the stairs, a leisurely coffee, and then a jump out the window.

 

Gold volatility is non-existent today in Asia, adding just one dollar to USD 1923.50 an ounce. Gold has resistance at USD 1965.00 and USD 1975.00 an ounce, followed by USD 2000.00 where I expect option-related sellers to be lying in wait once again. Support lies at USD 1917.00 and USD 1910.00 an ounce. A sustained break of the USD 1880.00 region will probably trigger a capitulation trade, potentially pushing gold down to USD 1800.00 an ounce.

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