Brent crude and WTI stage rare divergence

Saudi Arabia, Omicron send Brent and WTI in opposite directions

Oil prices traded sideways on low liquidity and participation on Friday, Brent crude easing slightly to USD 75.90 a barrel, and WTI easing to USD 73.20 a barrel. In Asia today, however, we are seeing a rare divergence in pricing direction. Brent crude has risen 0.70% to USD 76.40, while WTI has fallen by 0.65% to USD 73.20 a barrel.

I believe two different stories are in play here to explain the price action. CNN reported over the weekend, based on satellite photos, that Saudi Arabia is manufacturing ballistic missiles with Chinese assistance just outside of Riyad. An escalating arms race between Saudi Arabia and Iran is as good a reason to buy Brent crude as any.

In the US, hundreds of flights have been cancelled over the weekend due to staff shortages as airlines employees are forced to isolate themselves due to Covid-19 infection, notably omicron. Lower travel equalling lower economic activity in the US equals lower WTI, the US oil benchmark. Momentum is muted though, and I doubt either story will have a lasting impact on oil prices.

Brent crude has resistance at USD 77.05 a barrel, its 100-day moving average (DMA). It has support at USD 75.70. WTI has resistance at USD 74.10, its 100-DMA, and support at USD 72.30 a barrel.

Holiday risk-hedging lifts gold

Pre-holidays risk-hedging appears to have lifted gold higher on Friday, rising 0.27% to USD 1808.50 an ounce. In Asia, volumes are muted, with gold edging another 0.13% higher to USD 1810.80.

Gold’s attempts to stage a meaningful recovery remain unconvincing, with traders cutting long positions at the very first sign of trouble intra-day. It faces a double top around the USD 1815.00 region which will present a formidable barrier, ahead of USD 1840.00. Support lies at USD 1790.00, followed by USD 1780.00 an ounce. USD 1790.00 to USD 1815.00 continues to be my call for the range for the week.

With the US dollar looking more vulnerable to positive virus sentiment at the moment, gold could potentially move higher throughout this week, but I wouldn’t put my house on it sustaining those gains.

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