Cold spell boosts oil, gold falls

The big freeze pumps oil

With large swaths of US refining and production capacity offline due to the Texas power crisis and big freeze, oil prices marched higher again overnight. Brent crude rose 2.30% to USD64.90 a barrel, and WTI rose 2.60% to USD61.70 a barrel. Both contracts have crept higher in Asia, notably Brent crude, which has broken through the USD65.00 a barrel mark, rallying 0.50% to USD65.20 a barrel.

As long as the Texas power crisis and big chill persist, oil prices will remain elevated, occurring with the futures market’s curves in a bullish backwardation already. US API Crude Inventories unexpectedly fell by 5.8 million barrels overnight, hinting that official Crude Inventories will also slump as the Texas supply crunch bites. Although there seems to be some reluctance by Asian buyers to chase the market at these levels, any dips should be shallow and short-lived.

A move higher through USD66.00 a barrel by Brent crude targets further gains above USD70.00 a barrel. Similarly, WTI’s picture suggests an initial target of USD66.00 a barrel. Support is distant at USD62.60 and USD59.50, respectively. Neither is likely to be tested unless the US situation changes materially and rapidly. At that stage, the overbought technical picture could temporarily reassert itself.

A fall in official US Crude Inventories this evening by more than 3 million barrels, is likely to provoke another sharp spike higher in prices.


Gold remains in deep trouble

A strengthening US dollar overnight heaped more woe on gold, which fell another 1.0% to USD1776.00 an ounce. Asia has granted it some respite with the return on mainland China markets, rising 0.45% to USD1784.00 an ounce. The bounce, though, is asthmatic compared to the recent falls, and gold remains clinging by a thread above long-term support. Any more dollar strength, or a rise in US yields today, is likely to see the sell-off resume.

The 50-DMA has crossed below the 200-DMA at USD1857.00 an ounce, a bearish technical signal. The 100-DMA at USD1865.90, could well cross lower the 200-DMA next week, adding more gloom to the bigger gold picture. All three moving averages form a formidable resistance zone to any gold price recovery.

Gold broke support at USD1785.00 an ounce overnight, which becomes short-term resistance. The overnight low at USD1769.50 an ounce is initial support, followed by the 50% Fibonacci of the March to August rally around USD1760.00 an ounce. As I have stated previously, USD1760.00 is the must-hold level for the longer-term gold rally, and marked, I believed, a structural low. Failure may well provoke a capitulation trade by longer-term gold longs to near USD1600.00 an ounce.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was 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 and Channel News Asia as well as in leading print publications such as 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
Jeffrey Halley

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