Improved sentiment offsets OPEC+ production increase

Oil prices ground out a slightly higher close overnight, reversing the losses after OPEC+ decided to taper production cuts starting in August. OPEC+ will reduce cuts to a previously agreed 7.7 million barrels a day until the end of the year.

Oil prices initially fell but helped by a surprise fall of 7.5 million barrels in official US crude inventories, regained positive territory. Brent crude rose 1.30% to USD 43.60 a barrel, and WTI rose 1.10% to USD 41.00 a barrel.

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Both contracts are nudging the upper end of their one-month ranges now, and assuming sentiment stays positive, look set to retest critical resistances at USD 44.00 a barrel and USD 41.60 a barrel respectively. Brent crude still has a one-dollar gap between USD 44.00 and USD 45.00 a barrel on its daily charts, the legacy of its mid-March capitulation. A move through USD 44.00 a barrel, therefore, should see a rapid advance to the later price level.

With productions cuts tapering though, and doubts about US growth due to Covid-19, oil prices are much closer to equilibrium now, which explains the OPEC+ decision. Further gains are possible but exceeding the 200-day moving averages for Brent at USD 48.40 a barrel, and WTI at USD 43.60 a barrel, are likely to be bridges too far for now.

In directionless trade in Asia, weaker stocks and a stronger US dollar has seen both contracts ease by 20 cents this morning.

Gold continues to impress

Gold traded in a ten-dollar range overnight, finishing at its highs at USD 1810.00 an ounce. Downward pressures from firm equities offset by lower US yields and a weaker US dollar. Although the headline figure suggests a quiet day, gold’s price action and fortitude at these levels continue to impress.

The longer gold consolidates at its range highs, despite the price action in other asset classes, the move likely is that the next significant step will be higher. Should the US dollar weaken into the end of the week, that may come sooner rather than later.

Gold has support between USD 1780.00 and USD 1790.00 an ounce, with only the loss of the former inferring a deeper correction. Resistance remains at last week’s highs around USD 1819.00 an ounce. A daily close above this price will be yet another bullish technical signal, with no resistance on the charts until USD 1920.00 an ounce.

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