Oil climbs on equities, gold moves higher

Oil rallies with equity markets

Oil prices jumped overnight, as equity markets moved higher, which lead to a squeeze on short-term speculative oil positioning. Brent crude rose by 1.75% to USD42.50 a barrel, and WTI rose 1.10% to USD40.50 a barrel. The rally has quickly run out of steam in Asia, with both contracts giving back some of their overnight gains. Brent crude falling to USD42.10 a barrel, and WTI falling to USD40.25 a barrel.

The price action suggests that although the speculative community is still short, based on futures data, the underlying bearish drivers are still ascendant. That is, reduced consumption and a global oversupply by producers. That equation should continue to limit oil gains in both size and time duration.

That said, oil has traced out notable support over the past week. On Brent crude, the 100-DMA has halted price drops over the past seven days. The 100-DMA is at USD41.65 a barrel today and should continue to provide support. WTI’s 100-DMA is at USD39.15 a barrel today, and this region has supported prices over the past week.

Although both contracts now have strong technical support, the underlying supply/demand situation internationally means both lack the momentum to sustain strong rallies. Brent crude at USD42.00 a barrel, and WTI at USD40.00 a barrel, look close to equilibrium levels for now. As such we expect both contracts to range trade, albeit noisily, around those points for the rest of the week.

Gold performs impressively overnight

Gold rose 1.05% to USD1881.00 an ounce overnight, as the rally on equity markets, and the fall in the US dollar encouraged gold bulls to return to the market. Gold has edged higher again in Asia to USD1883.00 an ounce with regional players seemingly keen to add to longs this morning. With all South Korea and China starting holidays tomorrow and Thursday, risk-hedging flows from the region should support gold prices.

Gold has traced out multi-day support at USD1850.00 an ounce, and that is additionally supported by its 100-DMA, today at the same level. Resistance is nearby at USD1885.00 an ounce, with a break of USD1900.00 an ounce likely to spur some stop-loss buying as well as flushing more longer-term bullish traders out of hiding.

With holidays and event risks piling up throughout the rest of the week, gold is unlikely to break its USD1850.00 an ounce support region.