Oil rallies, gold edges higher

Oil prices rally overnight

Oil prices rallied sharply overnight as OPEC rebuffed increasing production above already agreed amounts, and Russian oil production fell below 10 mio barrels per day. Putin’s Ukraine negotiation dead-end comments also dampened hopes that a negotiated settlement could relieve tight energy markets.

Brent crude rallied 5.55% higher to USD 104.85, and WTI leapt 6.10% higher to USD 101.00 a barrel. In Asia, oil prices are almost unchanged after China imports slumped today. Asian buyers, having been able to pick and choose dips to buy into over the past week, seem reluctant to chase prices at these levels. That implies plenty of interest will be around to buy on any dips.

With the latest scheduled OPEC+ increase, and US and IEA SPR releases out there and priced in, it seems that China continues to drive the bearish price action. That impact may be waning now as OPEC refuses to increase production, and the situation in Eastern Europe continues to darken. Brent and WTI have fallen to the bottom of my ranges, but I expect Brent to remain in a choppy USD 100.00 to USD 120.00 range, with WTI in a USD 95.00 to USD 115.00 range. Brent crude has further support at USD 96.00, and WTI at USD 93.00 a barrel.

Gold charges higher overnight

Despite a much stronger US dollar, and US yields holding steady, gold prices charged higher once again overnight. Gold rose 0.63% to USD 1966.50 an ounce, gaining another 0.26% to USD 1971.60 in Asia today.

I will admit to scratching my head about the longevity of the gold rally at this stage. Either the gold bugs are walking into a huge bull trap that will end in tears, or the gold market is telling us the inflation and geopolitical risks are much higher than we are seeing in the headlines. I know which side my money is on, but one must respect the upward momentum until it turns.

Gold has initial resistance at USD 1980.00, the overnight high. After that, a test of USD 2000.00 is entirely possible, although I believe option-related selling there will be a strong initial barrier. If that is cleared, gold could gap higher to USD 2020.00 an ounce quite quickly.  A retreat through USD 1940.00 will signal a whipsaw move lower, chopping out the short-term money. Failure of USD 1915.00 will signal a retest of important support at USD 1880.00 and possibly USD 1800.00 an ounce. I can honestly say I don’t know which scenario will be the winner at this moment.

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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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