Oil dips on China concerns, gold range-bound

Oil eases in Asia on China fears

Oil prices consolidated their recent gains overnight, with Brent crude edging 0.70% lower to USD 122.85, and WTI easing by 0.80% to USD 121.45 a barrel. Oil has continued retreating in Asia, driven by China slowdown fears after widened Covid mass testing was announced for Shanghai this weekend. Brent crude is 0.53% lower at USD 122.20, and WTI is 0.60% lower at USD 120.70 a barrel.

Oil markets probably have more downside risk in the short-term, with another wave of China slowdown fears capping the upside. Somewhat counterintuitively, higher than forecast US inflation tonight may also spur more selling as markets price in a higher recession likelihood. Any losses are going to be limited though, as the physical tightness of both crude and refined products globally remain powerful supportive factors. Weekend event risk should also limit pullbacks.

Brent crude has traced out a series of highs at USD 124.25 marking initial resistance. After that, the road opens to USD125.00 and USD 128.00 a barrel, bringing the Ukraine invasion highs back into sight. Support is at USD 120.50 and USD 118.50 a barrel. WTI has resistance at USD 123.15, the overnight high, and then USD 125.00 and USD 127.00 a barrel. Support is at USD 119.35 and USD 117.50 a barrel.

Gold remains in a coma

Gold remains confined to a narrow USD 1840.00 to USD 1860.00 an ounce range, comfortably continuing to move in an inverted manner to US dollar moves. Gold’s main hope for a directional breakout rests with US Inflation data moving the US dollar materially one way or the other. In the meantime, bring a good book.

Gold has resistance at USD 1870.00, followed by the 100-DMA at USD 1890.00, and then USD 1900.00, where I expect there to be options-related sellers in the first instance. Support is at USD 1837, USD 1830.00, and then USD 1780.00 an ounce. I do not discount a disorderly retreat if the latter fails. The wider USD 1830.00 to USD 1870.00 range seems set to continue until the US data.

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