Oil has another virus slump
In a high-volatility week, oil markets are in a league of their own. The Moderna CEO’s vaccine efficacy comments yesterday triggered another massive slump in oil prices. Brent crude finished 4.50% lower at USD 70.15 a barrel, having traded below USD 68.00 intraday. WTI slumped 4.40% to USD 66.95 a barrel, having tested USD 64.50 intraday.
With risk sentiment improving slightly, and the fall in prices irresistible to physical bargain hunters, Brent and WTI have rallied by 0.85% to USD 70.8 and USD 65.65 in Asia. It must be noted, however, that the gains this morning are only a slight dent in the scale of the falls seen in the past four sessions. While positive virus headlines provide an excuse for fast-money buying, the weaker side still seems to be lower.
With panicked tail-chasing blowing out volatility this week, the full OPEC+ meeting tomorrow cannot come soon enough, with the grouping cancelling the JMMC meeting earlier this week to evaluate omicron. With oil’s slump overnight, it is almost certain that OPEC+ will pause its scheduled production hikes for December to allow it to assess the impact of omicron more fully on the world economy. President Biden won’t be happy, but it does seem to be the more sensible move right now. If OPEC+ postpones hikes tomorrow, oil prices may stabilise around present levels.
Technical levels and indicators are fairly useless in markets such as this, driven by panicked swings in investor sentiment and low liquidity. However, for what it is worth, the relative strength indexes (RSIs) on both Brent and WTI are now heavily oversold, indicating markets are vulnerable to a short squeeze. The overnight lows should provide some support ahead of OPEC+. Until OPEC+ announces its decisions though, we can expect more blood-bath range trading.
Gold is in trouble
Gold’s price action continues to underwhelm, as it finished the overnight session down 0.55% at USD 1775.00 an ounce, before eking out a 0.20% gain to USD 1778.70 an ounce in Asia, almost a rerun of the price action yesterday. There are zero signs of any safe-haven bids emerging to shelter from virus volatility, and it is falling despite both US yields and the US dollar also falling. Gold has now recorded its 3rd successive daily close below its 50,100 and 200 DMAs clustered between USD 1791.00 and USD 1792.20 an ounce, yet another bearish signal.
Gold will have resistance at $1800.00 and $1815.00, while yesterday’s low at $1770.00 an ounce, has traced out a double bottom support level. Failure of $1770.00 now signals a retest of $1760.00 and $1740.00 an ounce. I do not rule out a move lower to $1720.00 this week, especially if the Non-Farms puts the Fed taper front and centre after yesterday’s hawkish tone to the Powell testimony.