International Energy Agency sends oil higher
Oil spent much of Friday on the back foot as the US dollar surged. However, a report from the International Energy Agency (IEA) stating the demand would continue to recover and urging OPEC+ to pump more to contain price increases sent oil higher. Brent crude finished 0.30% higher at USD72.60 a barrel, with WTI climbing by 1.0% to USD70.80 a barrel.
Another bullish factor adding to the bullish outlook is the oil futures prompt spread. That widened notably last week, suggesting that immediate oil demand is increasing.
The rally has continued in Asia, where liquidity has been thinned by a China holiday. Brent crude has risen 0.55% to USD73.00 a barrel, with WTI rallying by 0.60% to USD71.20 a barrel.
Brent crude has nearby resistance at USD73.30, followed by USD76.00 a barrel, and only the failure of USD70.00 a barrel undermines the bullish outlook. WTI has resistance at USD72.50, followed by USD75.00 a barrel. Only a fall through USD68.00 a barrel changes its bullish outlook.
That oil has rallied so significantly in the face of prominent US dollar strength suggests the rally has plenty left in it, as does the widening of the futures curve backwardation.
Gold wilts on US dollar strength
Gold endured a torrid session on Friday, with the US dollar rally sending it 1.10% lower to USD1878.00 an ounce. Things have continued in the same vein today, with gold retreating another 0.72% to USD1864.25 an ounce.
Although US dollar strength explains the capitulation on Friday, I highly suspect that Bitcoin’s impressive 9.0% weekend rally and a non-event G-7 have contributed to its demise this morning. The price action suggests that the speculative market was heavily long as of Friday and that the culling of positioning continues in Asia today.
Gold has support at USD1856.00 an ounce, but the USD1840.00 to USD1845.00 zone must hold to keep the bullish case on track. That contains a series of previous daily highs and the 200-day moving average (DMA). Failure means that gold is undergoing a much deeper correction that could extend to its 100-DMA at USD1800.00 an ounce. Rallies will be limited to USD1880.00 and USD1900.00 an ounce ahead of the FOMC.
