Oil prices were in full retreat overnight as markets today await the outcome of today’s OPEC+ meeting. Oil markets ignored a weaker U.S. dollar and instead ran for cover on two developments. Firstly, official U.S. EIA Crude Inventories unexpectedly rose by 3.3 million barrels, with gasoline and distillate inventory moves balancing each other out. Cushing stocks fell once again to multi-year lows, but this was ignored. More importantly, U.S.-Iran talks are going to resume at the end of the month and the prospect, however remote, of a rush of Iranian crude, prompted a sell-off in oil markets.
Brent crude fell by 3.35% to US$81.30 a barrel, while WTI fell by 3.50% to US$83.10 a barrel. In Asia, Brent has remained steady, while WTI has slipped below US$80 to US$79.90 a barrel. The U.S.-Iran news has likely wiped out any last hope that OPEC+ will increase production targets, which may be supportive later in the session. With speculative markets heavily skewed to long positioning, this culling could continue for another session although I suspect once OPEC+ is out of the way, physical buyers will return, as oils fundamentals remain very constructive.
Both Brent and WTI closed on their lows overnight, an ominous sign for short-term prices. A fall by Brent crude through US$81.00 does open the possibility of a spike to US$79.00 a barrel. Resistance is distant at US$84.00 and US$85.10 a barrel. WTI fell through its two-month trendline support at US$82.30 overnight, which becomes resistance, followed by US$83.00 a barrel. More immediately, a fall though US$79.50 signals another leg lower that targets the US$76.00 to US$77.00 a barrel region.
Gold’s Price Action Worsens
Gold had a volatile session overnight, spiking as low as US$1760.00 an ounce, with the wider US$1770.00 to US$1810.00 range barely holding. Gold finished the day 1.0% lower at US$1770.00 an ounce, before retracing some of those losses in Asia, rising by 0.35% to US$1776.00 an ounce. The price action was especially negative given that the U.S. dollar actually fell overnight, and Jerome Powell gave a master class in dovish fence-sitting. A firming of the entire U.S. yield may have been the culprit, although the price action was relatively modest.
Whichever way one looks at it, gold’s price action has been uninspiring this week and even more so overnight, and the balance of risks has unambiguously swung back to the downside. Only an extremely weak U.S. non-farm payrolls print tomorrow night will give gold a chance to recapture US$1800.00 an ounce. Today’s rally in Asia looks like a dead cat bounce.
Gold fell through its one-month trendline support on Friday, which is today at US$1800.00 an ounce. That is followed by resistance around US$1810.00 and then US$1835.00 an ounce. Failure of US$1760.00 and US$1750.00 should see gold retest US$1720.00 an ounce.
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