Oil under pressure, gold stays steady

Oil’s price action is ominous

Oil edged lower on Friday, finishing at the bottom of a tight trading range. Brent crude fell 0.25% to USD39.80 a barrel, and WTI climbed slightly by 0.50% to USD37.45 a barrel. Oil has edged higher in early Asian trading, both contracts up 15 cents, coat-tailing the positive start by equities.

The technical picture remains ominous for both contracts though, and for Brent crude in particular. The announcement that the blockade of Libyan oil export terminals may be about to end will add to the woes of OPEC+’s meeting this week. Libyan supplies hitting an already saturated international market is just the news OPEC+ did not want to hear and likely explains Brent’s underperformance vis-a-vis WTI.

From a technical picture, Brent has traced a series of lower highs over the last week, and a contracting daily range, signalling another price breakout is coming. More worryingly, it recorded a weekly close below its 100-DMA at USD40.00 a barrel suggesting that the next significant move is down. Brent crude’s chart suggests that further losses to USD37.00 a barrel are the path of least resistance, and the international supply/demand picture reinforces that view.

WTI’s 100-DMA has halted daily declines through all the last week, and today, sits at USD37.20 a barrel, just below current levels. It too is showing a series of contracting ranges implying a breakout is coming. A daily close below the 100-DMA suggests further losses to lasts weeks lows around USD36.00 a barrel, and possibly as far as USD34.50 a barrel.

OPEC+’s virtual meeting this week will be a fraught one. An abundance of supply, the possible return of Libyan exports, member compliance and a softer demand outlook, will unsettle the grouping. I doubt that OPEC+ will “blink” this week and signal a move back to higher production cuts, the will just isn’t there. Assuming that as a base case, oil prices are vulnerable to deeper downward corrections this week.

Gold remains side-lined for now

Gold prices slipped slightly on Friday, falling a modest 0.30% to USD1940.50. That has left gold anchored firmly in the middle of its one-week range. While gold has weathered the storm of an equity sell-off last week, which should be pleasing for investors, it does appear that the attention of financial markets is elsewhere for now.

It is likely that status quo will continue until the FOMC meeting passes on Wednesday evening, and we have more visibility on monetary policy and the direction of the US dollar. That said, gold’s bullish longer-term fundamentals have not changed.

Gold has well-denoted support between USD1900.00 and USD1920.00 an ounce, with trendline resistance at USD1970.00 an ounce today.

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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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