OPEC+ surprises, with conditions
Oil markets rallied last night despite OPEC+ surprising the markets and the author by deciding to continue their pre-planned 400,000 bpd production increases this month. OPEC+ has left a huge poison pill in their statement, retaining the right to convene an immediate meeting and to change their mind if omicron continues to send oil prices lower. That has made it dangerous to be short at these levels and the net effect was to lift prices higher, after the market sold immediately on the headline, before reading the small print.
Overnight, Brent crude finished 2.25% higher at USD 70.50 a barrel, while WTI rallied 2.25% to USD 67.35. In Asia, both contracts have continued to rally, rising 0.50% to USD 70.85 and USD 69.70 a barrel. Unless we get a major omicron escalation, I will stick my neck out and say that this week’s lows for Brent and WTI likely represent the lows for the medium-term. The relative strength indexes (RSIs) are still oversold meaning both contracts remain vulnerable to a further short-squeeze.
The overnight lows for Brent at USD 65.80 and for WTI at USD 62.50 a barrel form short and medium-term support, and it is unlikely the market will want to test OPEC+’s mettle at this stage. The grouping having shown itself to be relatively immune to pressure from the US President amongst others. That said, virus concerns continue to linger, meaning Brent crude will struggle to recapture USD 75.00 a barrel, and WTI USD 70.00 a barrel in the nearer term.
Gold’s standing 8-count continues
With virus nerves subsiding and the Fed-taper stronger US dollar story reasserting itself, gold continued to take a standing 8-count, remaining near its weekly lows. Gold fell 0.77% to USD 1768.25 an ounce overnight, before weekend risk hedging buyers in Asia lifted it back to USD 1772.50 this morning.
Gold is flirting with its last major support level at USD 1770.00 an ounce, and failure tonight sets up a possible wave of stop-loss sellers and a retest of USD 1720.00, possibly as early as next week. Gold’s inability to rally with skyrocketing risk aversion, a weaker US dollar or weaker US yields remains deeply concerning.
Gold has resistance between USD 1791.00 and USD 1792.00 an ounce, where the 50, 100 and 200-day moving averages are clustered. Behind that is USD 1800.00 and then USD 1815.00 an ounce.