Oil markets tread water nervously
Oil markets had a relatively quiet session overnight as the schizophrenic tail-chasing of previous sessions turned to something approaching patience and normality overnight.
Brent crude fell 0.50% to USD 75.50 a barrel, while WTI eased by 0.70% to USD 74.15 a barrel. Both contracts rose by 10 cents a barrel in directionless trading in Asia.
Both Brent and WTI probed the downside overnight before recovering much of those losses. As such, Brent crude appeared to have interim support at USD 74.00 a barrel, while WTI’s immediate support was lying around USD 73.00 a barrel.
In the bigger picture, Brent crude's key longer-term levels remained USD 73.00 and USD 78.00 a barrel, while WTI’s were USD 71.00 and USD 77.00 a barrel. Although the US CPI data will be of passing interest to oil markets, investors are really waiting on the Saudi Arabia and UAE dispute within the OPEC+ grouping to resolve itself.
The longer the stand-off continues without a clear resolution, the greater the chances are that we could see another meaningful corrective fall in oil prices, as fears over OPEC+ discipline rise. Another factor weighing on sentiment is Asia’s COVID-19 situation and the rising cases in the northern hemisphere. China’s trade data has alleviated—but not eliminated—consumption concerns.
Gold awaits US CPI
Gold spiked lower to USD 1791.50 an ounce overnight but held support ahead of its 100-day moving average (DMA) at USD 1791.00. It quickly reversed to finish the day just 0.13% lower at USD 1806.00 an ounce, marking another non-descript day of range trading. Some US dollar weakness has seen gold drift higher to USD 1809.00 in Asia.
Gold remained locked in a relatively narrow USD 1790.00 to USD 1820.00 an ounce range, bounded by the 100-DMA below and the 200-DMA above at USD 1827.50 an ounce. With gold a purely US dollar directional play at the moment from a short-term perspective, I expect gold to trade sideways with currency markets until the US CPI data today.
A significant upside surprise by the US Core CPI could put short-term downward pressure on gold, especially if US bond yields and the US dollar climb.
However, losses should be limited to support from the USD 1750.00 to USD 1755.00 an ounce region. A daily close above USD 1830.00 an ounce will signal that the next leg of gold’s recovery has resumed.