Oil faces challenges this week
Oil prices continue to ease in international markets as a stronger US dollar and a wait-and-see attitude ahead of tomorrow’s OPEC+ meeting act as a short-term headwind. Additionally, US API Crude Inventories unexpectedly jumped by 3.60 million barrels overnight giving traders another reason to lighten long positioning.
Brent crude fell by 0.50% to USD 84.10 overnight, easing another 0.30% to USD 83.80 a barrel in Asia. WTI fell by 0.95% to USD 83.00 overnight, retreating another 0.30% to USD 82.70 in Asia. While OPEC+ will be front and centre for oil markets tomorrow, tonight’s official US crude inventories should not be forgotten. A rise in headline inventories of around 2 million barrels is expected with distillates and gasoline stocks expected to fall once again. However, the critical data point will be the crude stocks at the Cushing Hub. Much of WTI’s recent narrowing of its basis with Brent is because stocks are continuing to plunge in Cushing. If Cushing inventories post another large drawdown, WTI should outperform, even if the headline number pushes Brent crude lower.
Brent crude is struggling to maintain gains above USD 85.00 and has further resistance at USD 86.00 a barrel. Support is at USD 82.20, and failure could see it retest USD 80.00. WTI looks the more constructive but is testing trendline support at USD 82.30 a barrel this morning, which opens further losses to USD 80.50. It has resistance at USD 84.75 and then USD 85.50 a barrel.
Gold retreats on a rising US dollar
Gold’s choppy range trading continues ahead of the FOMC, with the wider USD 1770.00 to USD 1810.00 range continuing to contain nicely. Once again overnight, gold showed no other interest other than moving in an inversely correlated manner to the US dollar. With the greenback rising overnight, gold fell 0.30% to USD 1788.00, before easing another 0.35% to USD 1781.60 an ounce in Asia.
The price action in Asia suggests that gold investors are concerned about a potential hawkish surprise from the FOMC tonight and if that were the case, is probably worth a USD 50 an ounce move lower tonight. Unless the FOMC torpedoes the US dollar and bond market by sticking to their dovish mantra and not tapering it is hard to see gold having the moment to recapture USD 1800.00 this week.
Gold fell through its one-month trendline support on Friday, which is today at USD 1798.00 an ounce. That is followed by resistance around USD 1810.00 and then USD 1835.00 an ounce. It has support at USD 1772.00, followed by USD 1760.00 and USD 1745.00 an ounce.
