Crude climbs higher on US inventories

US inventory falls push oil higher

US official crude inventories fell by 4.5 million barrels overnight and have now fallen by over 22 million barrels over the past few weeks. Distillate and gasoline stocks also fell, implying that economic activity in the US remains on a growth pass. However, one could argue that declining US domestic production is the underlying culprit.

The data was enough to spark some life into slumbering oil contracts. Brent crude rose 1.85% to USD45.30 a barrel, and WTI rose 2.15% to USD42.55 a barrel. As the dust settles though, I note that both contracts remain enclosed in their one-month ranges, albeit now at the top end of them. A decent fall in weekly initial and weekly claims this evening could be the trigger oil needs to retest its one-month highs.

After seeing some initial profit-taking sellers, oil in Asian trading has returned to unchanged levels from the New York close.

Likely though, the rallies on both will fade from these levels, as they have in previous weeks. Brent crude has resistance at USD45.85 and then USD46.25 a barrel, with initial support at USD44.30 a barrel. WTI is testing its 200-DMA this morning at USD42.30, which form intra-day support. A daily close above would be a bullish technical indicator. Resistance is nearby at USD42.80 and then USD43.50 a barrel.

Gold clings on after a roller-coaster overnight session

Nobody can complain about a lack of volatility on precious metals at the moment. Yesterday’s session provided a roller-coaster session for traders that wouldn’t look out of place at a theme park. After opening at USD1912.00 an ounce, gold plunged to USD1863.00 an ounce in Asia before rallying as high as USD1949.00 an ounce. Unbelievably, after such a volatile session, gold recorded a headline of just 0.25% for the day, closing at USD1916.00 an ounce.

Gold in Asia if 0.60% higher at USD1928.00 an ounce, having traded as high as USD1949.50 an ounce. Asian investors seem keen to buy the dip but are not prepared to chase the market higher.

A weaker US dollar undoubtedly helped gold off its knees yesterday, although I note that gold’s rally was already well established during the Asian session. If nothing else, gold’s price action highlights two things to me. Intra-day prices movements are dominated by very non-sticky fast money traders in a low liquidity environment. Secondly, longer-term investors appeared in force as gold fell towards USD1850.00 an ounce and appear to be happy to pick up more on dips in Asia today. What they are not doing is chasing gold mindlessly higher.

The latter is a sound strategy; the former is for the brave and fast only. Gold has support at USD1913.00 initially, followed by yesterday’s low around USD1863.00 an ounce. In this environment, it certainly has the capacity to retest that low, perhaps even as far as USD1830.00 an ounce. Initial resistance is at USD1949.00 an ounce, yesterday’s highs, followed closely by USD1960.00 an ounce.

The volatility in recent days has extended ranges massively, and consequently left lots of clear air between technical support and resistance levels. Volatility will continue.

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