Oil surprises to upside, gold drifting

US crude inventories send oil prices higher

Oil was the night’s surprise package, with Brent crude and WTI rallying strongly despite downgrades yesterday for 2021 oil consumption. Brent crude rose 2.30% to USD43.40 a barrel and WTI also rose 2.30% to USD41.10 a barrel.

The likely culprit behind the rally was probably the US API Crude Inventory data, with crude stocks shrinking by 5.422 million barrels, well above the 3.4 million-barrel drop expected. Much of the fall is due to the effects of Hurricane Delta shuttering US production in the Gulf of Mexico, and as such, it will be a transitory effect. Therefore, I am not getting too excited that a turn of direction is upon markets, although both contracts are approaching important technical resistance regions.

Although unchanged in Asia, Brent crude looks set to test nearby resistance at USD43.50 and USD43.75 a barrel, with support at its 100-day moving average (DMA) at USD42.60 a barrel. WTI meanwhile, has resistance nearby at USD41.50 and USD41.85 a barrel, with support at its 100-DMA at USD40.10 a barrel.

For the rally to continue, both contracts need a daily close above the above resistance zones. But I would caution about being dragged into a sucker’s rally at these price levels. Oil has been driven higher by hurricane-induced falling US inventories, but the fundamental supply/demand equation globally has not changed. US production is rapidly coming back online, and the fall in inventories may be temporary. Risks of escalating European Covid-19 restrictions will negatively impact that equation and should not be dismissed lightly.

Gold prices are drifting

Gold has had a directionless 24 hours, rising modestly by 0.55% overnight to USD1902.00 an ounce, and then falling by 0.25% to USD1896.50 an ounce in Asia this morning. With gold’s direction being decided mostly by moves in the US dollar and equities to a certain extent, and not by gold itself, we are likely to experience more of the same over the coming day.

Gold has support at USD1880.00 an ounce, and then its 100-DMA at USD1870.00 an ounce. Resistance lies at USD1913.00 an ounce, the overnight high, followed by the descending trendline today at USD1926.60 an ounce. In all likelihood, given the lack of drivers elsewhere, though, support/resistance levels will contain gold’s trading range until the end of the week.