Oil remains near its recent highs
Oil prices remained firm yesterday, despite the lower than forecast US CPI data. Both Brent crude and WTI recorded small increases leaving them at the top of their September ranges. The energy component of the US CPI basket rose, despite other components dragging the overall number down, with no real sign in physical markets of lower demand leading to softer prices. Additionally, Tropical Storm Nicholas has disrupted oil production and refining recovery in the Gulf of Mexico, coming after the devastation of Hurricane Ida. In the bigger picture, natural gas prices are rocketing in the northern hemisphere ahead of winter, especially in Europe and Asia. I believe that will provide some indirect support to oil prices going forward, given the ominous look to the natural gas rally. It could well be a winter of discontent.
Brent crude rose by 0.40% to $73.90 yesterday, adding 0.30% to $74.15 a barrel in Asia. Having cleared resistance at $74.00 a barrel, and with Europe arriving, Brent crude is poised to rally to $75.00 and possibly $76.00 a barrel in the days ahead. Only a fall through $72.75 a barrel invalidates the bullish outlook.
WTI rose by 0.20% to $70.75 yesterday, before climbing by 0.30% in Asia to $71.00 a barrel. WTI should now target $72.00 and potentially $74.00 a barrel in the days ahead. Only a failure of $70.00 a barrel will invalidate the bullish outlook.
Gold, the reverse-inflation hedge
It is ironic that as US inflation underperformed yesterday, that gold traced out a 0.60% gain to $1804.50 an ounce. Apart from partially confirming that gold only really hedges Latin American style-inflation, much of gold’s rally was due to the intraday spike lower by the US dollar That said, it held onto all those gains even as the US dollar clawed back all of its losses, hinting that some new buyers had been entered the market.
Gold has faded in the Asia session though, falling to $1801.00 as Europe starts its day. With the US Dollar expected to remain firm as risk-sentiment sours, gold may have had its one day in the sun, much like Chinese equities these days. The underwhelming performance of gold of late has not changed.
Gold rose to initial resistance at its 200-DMA at $1809.00 overnight but retreated from there. The 200-DMA resistance remains intact therefore and is followed closely by the 100-DMA at $1816.50 an ounce and the formidable series of multi-day tops around 41834.00 an ounce. Support remains clearly marked at $1780.00 and failure will signal deeper losses to $1750.00 an ounce.