Oil rockets, gold shows slight gains

Oil prices explode higher on Russian supply shock

Oil prices exploded higher in New York overnight, and have continued higher in Asia today as well, with Brent crude topping USD 110.00. My inbox is filled with pieces outlining supply disruptions from Russian oil today. The underlying theme is that even if one could theoretically buy Russian oil and gas without breaking sanctions, no one wants to take the risk and won’t touch them with a 10-foot barge pool. Assisting the rally along was the feeling that the IEA SPR release was a drop in the ocean, and a surprise fall in US API Crude Inventories by 6.10 million barrels.

Overnight, Brent crude leapt an eyewatering 9.45% to USD 107.55 a barrel, and WTI rose a quite incredible 10.95% to USD 106.35 a barrel. In Asia, the panic has continued as buyers scramble for supplies. Brent crude has risen 2.60% to USD 110.05, and WTI by 2.05% to USD 108.50, although both are off intraday highs.

Asia’s rally was assisted by comments coming from the OPEC+ meeting that the grouping would not be increasing supplies by more than the 400,000 bpd previously agreed. The Iran nuclear deal has also gone quiet, and that is about the only thing that could give temporary relief to oil prices now. The uncomfortable fact is that OPEC compliance is well above 100% anyway, meaning they are pumping as much as they can, so even an announcement theoretically larger increase would not materially impact markets for more than the short-term.

As the realities of the Ukraine-Russia situation bite once again, I intend to stick to my view that Brent crude will top USD 120.00 a barrel and could trade near to USD 130.00 a barrel. That will be the price of the world holding its nerve to cripple Russia’s economy.

Brent crude has theoretical technical resistance at USD 119.00 with support at USD 98.00 and USD 96.00 a barrel. WTI will have resistance at USD 110.00 and 112.00, with support at USD 100.00 a barrel. The Relative Strength Indicators (RSIs) on both are at extreme overbought levels, so I am not ruling out potentially substantial short-term pullbacks from here. However, they are likely to be dips to buy for the brave, and not a structural turn in market direction.

Gold leaps higher but price action is unimpressive

Gold prices leapt higher overnight in lockstep with the ratcheting plummet in investor sentiment, sparking safe-haven inflows. Gold rose 1.90% to USD 1945.50 an ounce. The price action remains unconvincing, however, notably because gold prices have immediately fallen by 0.50% to USD 1936.50 in Asia as US futures staged the most minimal of rallies.

The case for higher gold is strong in this environment and needs no explanation from me. Much of the rally still seems to be being driven by fast money based on the price action in Asia. That says two things to me; real investor flows are still underweight in gold, and gold is vulnerable to further rapid retreats as the fast money hits the exit at the first sign of trouble.

Gold should continue to move higher in the bigger picture, short of a sudden change in the Ukraine situation, but it is likely to be an emotionally draining series of zig-zags up and down along the way. Being patient and waiting for dips could spare gold investors’ a few heart murmurs.

Gold has support at USD 1902.00 with critical support now at USD 1880.00 an ounce. Resistance is at USD 1950.00 and USD 1975.00 an ounce. I note that the gold RSI is also in overbought territory, raising the spectre of the next short-term move being down, and not up.

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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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