Oil soars, gold directionless

Oil prices explode higher

Brent crude and WTI prices exploded higher overnight after Gazprom declared a backdate force majeure on some major European customers. That raised fears that gas flows would not return through the Nord Stream 1 pipeline to Germany at the end of the week, causing a knock-on impact on oil prices. Markets also seem to have concluded that President Biden effectively returned from Saudi Arabia empty-handed from his weekend visit.

Brent crude leapt 4.80% higher to USD 105.65 overnight, adding another 0.35% to USD 106.00 a barrel in muted Asian trading. Brent crude has nearby resistance at USD 106.50, followed by USD 108.00 a barrel. Support is distant at USD 99.50.

WTI leapt 4.55% higher overnight to USD 102.05, adding 0.45% to USD 102.45 a barrel in Asia. It has now-distant support at USD 96.00 a barrel, with resistance nearby at USD 103.00 and USD 105.00 a barrel.

The intraday volatility in oil prices is rendering technical levels somewhat meaningless for now, and it seems that extra volatility is feeding into less intraday liquidity, exacerbating movements in a negative feedback loop. I note that both contracts have held and rallied from their 200-day moving averages on a daily closing basis. When combined with the fact the futures curves are still in backwardation, a bullish set-up for prices that reinforces that despite speculative volatility, the underlying supply/demand imbalance is as tight as ever. Oil prices may have peaked, but they certainly don’t look like they’re going materially lower from here unless we get a huge surprise from OPEC+.

Stubbornly firm economic data from the US and improving data from China are other supportive factors. Risks remained skewed to the upside if Russian gas does not start flowing back to Europe at the end of this week.

Gold remains unimpressive

Gold has another unimpressive session overnight, peeping above USD 1720.00 intraday but closing almost unchanged at USD 1709.00 an ounce by the session’s close. ​ It has edged 0.10% lower to USD 1708.00 an ounce in another comatose session in Asia.

Gold’s inability to hold onto even modest rallies in prices, even as the US dollar falls and US bonds trade sideways, is a major concern in my option. It suggests that risks remain heavily skewed towards the downside. The US dollar index is over 150 points off its peak from last Friday, yet gold remains glued to 11-month lows. It seems that only a much deeper correction lower by the US dollar will grant gold a stay of execution.

Gold has initial support at USD 1700.00, followed by the more important USD 1675.00 an ounce zone. A sustained failure of USD 1675.00 will signal a much deeper move lower, targeting the USD 1450.00 to USD 1500.00 an ounce regions in the weeks ahead. Gold has resistance nearby at USD 1725.00 and then USD 1745.00 an ounce.

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