Oil prices fall on Russia and US crude inventories
The offer by Russia to pump more natural gas to Europe, while short on detail, was enough to send natural gas prices 10% lower overnight, capping oil’s potential gains. That was followed by official US Crude Inventory data which showed a large jump of 3.25 million barrels. Heating oil, gasoline and distillate inventories showed equally large jumps, suggesting that US production is now back on track after Hurricane Ida. That was enough to spark a sell-off by oil which was already heavily long.
Brent crude fell by 2.10% to USD 80.80, and WTI slumped by 2.70% to USD 76.90 a barrel. Oil prices have continued easing slightly in Asia, with Brent crude trading at USD 80.70 and WTI at USD 76.70 a barrel. For context, however, both contracts remain comfortably higher for the week.
I am looking at the overnight slump as a technical move that was overdue, with fast money speculative longs pushing the relative strength indexes (RSIs) on both contracts into heavily overbought territory. The RSIs are usually a good indicator of technical price reversals when they move into deep overbought or oversold territory. The northern hemisphere energy crisis has not magically vanished overnight, and nor can it be magically solved overnight. Russia’s gas proposal, for example, was high on rhetoric, but low on specific details of how much, how, and when. China also returns to work tomorrow, and you can guarantee they won’t be feeling any more comfortable about their energy situation than before the long break.
The fall overnight looks more like a speculative washout of short-term positioning, and as I have contended all week, the dip in prices is likely to be short in duration. Natural gases prices would have to fall a very long way still to change my mind. I fully expect China buyers to take advantage of this price dip in line with their “at any costs” instruction from the central government.
On Brent crude, I expect physical buyers to be lining up between USD 79.00 and USD 76.00 a barrel, while WTI should find support between USD 76.00 and USD 73.00 a barrel. A few days of sideways price action would further reduce overbought RSI technical indicators, allowing for a retest of USD 83.00 by Brent crude, and USD 80.00 a barrel for WTI, by early next week.
Gold remains sidelined but supported
Gold prices continue showing resilience, trading sideways once again overnight despite a stronger US dollar. Gold rose slightly to USD 1763.00 overnight, slipping to USD 1760.00 an ounce in Asia as listless trading continues. Despite gold seemingly slipping off the radar, its refusal to retreat in the face of firm US yields, a continuing rally by the US dollar and short-term exuberance in the equity market, is telling. Gold’s refusal to roll over in the face of usually bearish headwinds suggests that nervous investors are continuing to quietly hedge risks via long gold positions. If anything, gold’s tenaciousness at these levels signals that today’s equity rally has very shaky foundations.
Gold appears set to retain its haven bid into tomorrow’s US employment data, although that data will cause a very binary outcome for gold into the end of the week. A firm US payrolls should see gold head south once again and potentially test USD 1720.00 an ounce. A weak number could spur a rally through USD1780.00 to USD1800.00 an ounce.
In the meantime, gold looks set to continue finding support into USD1750.00, with gains limited to USD1770.00 an ounce. That narrow range will probably persist into the US data, although pre-weekend Asian buyers tomorrow could keep it near the upper end of that.
