Oil edges lower, metals under pressure

Oil is lower despite crude inventory falls

Oil edged lower overnight, ignoring above expected falls in US crude, gasoline and distillate inventories, which is concerning for prices in itself. Any premium from the inventory effect got drowned out by a stronger US dollar and clear risk-off flows out of multiple asset classes.

Brent crude edged 0.65% lower to USD41.50 a barrel, its rally having failed ahead of USD43.00 a barrel earlier in the day. WTI also attempted a rally yesterday, but it too fell short, running out of steam ahead of USD41.00 a barrel and finishing 0.40% lower at USD39.60 a barrel. Both contracts have continued lower in Asia, falling a further 15 cents to USD41.35 and USD39.45 a barrel respectively.

Oil prices are wilting as the product for immediate delivery remains plentiful. Consumption outlook concerns are rising as Covid-19 restrictions return in Europe, and the clamour from the Federal Reserve for more US fiscal stimulus, undermines the global recovery case, the lynchpin for oil’s price recovery.

The dead cat bounces on oil prices look set to continue in this environment. Brent crude continues to flirt with support at USD41.30 a barrel, its 100-DMA. WTI is much the same, its 100-DMA being just below present levels at USD38.70 a barrel.

With the US dollar rampant, and with crude unable to maintain price gains in the face of falling US crude inventories, oil will almost certainly test its September lows in the days ahead.

Silver sell-off drags gold under the surface

Precious metals continued their sell-off overnight after a day of consolidation. Silver once again led the way, falling 6.70% overnight, and another 2.75% to USD22.1500 an ounce this morning. Gold duly followed suit, falling nearly 2.0% and breaking its August lows. It has edged another 0.30% lower in Asia today to USD1857.00 an ounce.

It is clear from the price action across markets overnight that the slump in equities has sparked a general move out of other asset classes and into US cash. Thus, gold and silver failed to gain any safe-haven premium with both metals finishing near their lows, an ominous development.

Silver has tested its 100-DMA this morning at USD21.7000, and this level, for now, appears to be providing some support. The rally though is modest, suggesting another test lower is imminent. The next target being its 200-DMA at USD19.0900 an ounce.

Gold’s close below its August low at USD1863.00 an ounce is significant, and it is now testing its overnight lows at USD1855.00 an ounce. The 100-DMA nearby at USD1843.00 an ounce should provide the same initial support as it did with silver. Both metals are now entering oversold territory on their technical indicators as well, also modestly supportive.

Both gold and silver are likely to consolidate at their lows in Asia and early Europe, awaiting direction from New York. If the Wall Street sell-off resumes, it is almost inevitable that gold and silver will follow suit as the world looks to park money in US cash to the exclusion of everything else. If Wall Street rediscovers its mojo, both metals should receive a stay of execution. It may just be that though, a stay of execution.