Oil slumps overnight
As mentioned above, a surprisingly high build in US API crude and refined product inventories spurred a late and aggressive slump in oil prices. Clearly, the speculative market is not prepared to wear any sort of losses from bottom fishing now, and we can expect to see more of these sorts of days going forward until the recession/inflation picture becomes clearer. That said, I believe that the disconnect between the real world, and the speculative world, is growing wider and although I don’t rule out more downside surprises, I believe the recent selloff could be getting a little overdone.
Brent crude plummeted by 6.75% lower to USD 99.10 overnight, while WTI collapsed by 7.60% to USD 95.60 a barrel. In Asia, both contracts probed the downside initially, but the lure of low prices was too irresistible for Asian buyers. Brent crude has risen 0.30% to USD 99.40, while WTI has recovered its losses to be unchanged at USD 95.60 a barrel.
The chart picture has turned negative again for both contracts, although I note that Brent crude has had these ranges up and down in three of the past six trading sessions, showing just how skittish the short-term trading market is. The RSIs on both contracts are still in neutral territory, implying that more downsides could occur, just as easily as a sharp rally could.
Brent crude has nearby resistance at USD 100.00, followed by a now distant USD 106.00 a barrel. It has nearby support at USD 98.40 followed by the much more import 200-day moving average (DMA) at USD 96.80 a barrel. Consecutive daily closes below the 200-DMA will force a reassessment by me, perhaps meaning that the backwardation important futures curves move lower with spot prices but remain in backwardation. A sort-off hawkish easing if you like. 2022 continues to surprise me.
WTI looks the more vulnerable after the API crude inventory data overnight, and tonight’s official US crude inventory data rises in importance. WTI tested its 200-DMA this morning at USD 94.00 a barrel but managed to rally from there. Consecutive daily closes under the 200-DMA would be an ominous development for prices, depending on your point of view. USD 93.00 is the next support level after the 200-DMA. Resistance is at USD 96.00 a barrel, followed by a now-distant USD 103.50 a barrel.
Gold needs a low US inflation print
Gold traded in quite a wide range between USD 1723.00 and USD 1745.00 an ounce overnight, but finished 0.45% lower at USD 1726.50 an ounce, another unimpressive close. In Asia, it has eased slightly to USD 1725.50 an ounce in a moribund session.
Gold desperately needs the US inflation data to come in lower than expectations tonight, which should trigger a pullback by the US dollar, lifting gold prices. That said unless the US dollar stages an extended and extensive pullback lower, gold’s technical picture remains grim. A high inflation number tonight from the US could well see USD 1675.00 finally tested. The only saving grace for gold right now is an oversold RSI, suggesting that a lower US dollar could trigger a disproportionate upside correction by gold.
Gold has resistance at USD 1745.00, now a double top. That is followed by USD 1780.00, USD 1785.00, and USD 1802.00, its downward trendline. Support is at USD 1720.00, followed by USD 1675.00. Failure of longer-term support at USD 1675.00 sets in motion a much deeper correction, potentially reaching USD 1500.00 an ounce.
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