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.

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