Oil surges on OPEC deal, gold choppy

Oil prices rocket on OPEC+ surprise

OPEC+ sprung a massive surprise on energy markets overnight, granting a tiny increase in production to Russia and Kazakhstan, but wrong-footing markets by announcing a unilateral cut by Saudi Arabia of one million barrels per day. That actually leaves markets with less oil per day than before the OPEC+ meeting and casts Saudi Arabia as a source of monthly volatility going forward.

The magnanimous gesture by the Saudis could be aimed at maintaining OPEC+ discipline. By cutting production and lifting prices, the Saudis can take the pressure off weaker members’ budgets. That will help ensure compliance and discipline and loyalty.

Iran’s seizure of a South Korean oil tanker for “environmental violations” is a clumsy attempt to extort USD7 billion of frozen Iranian funds from Seoul. It does add uncertainty to the situation in the Straits of Hormuz, another positive for oil prices. Clearly, enriching uranium to 20% is an expensive business.

Oil prices rocketed higher after the OPEC+ announcement. Brent crude rose 5.45% to USD53.50 a barrel and WTI rose 2.45% to USD49.80 a barrel. Today in Asia, oil has climbed again, Brent increasing 0.70% to USD53.90 a barrel, and WTI rising 0.50% through the USD50.00 a barrel mark to USD50.05 a barrel. That leaves both contracts at 9-months highs, levels last seen just before the Covid-19 capitulation slump.

With supplies now being squeezed, both contracts have every chance of maintaining their impressive two-month price gains, as the world recovery continues to accelerate. Brent crude’s next target is USD60.00 a barrel, with only a retreat through USD50.50 a barrel calling the rally into question. WTI, having broken through the USD50.00 a barrel barrier, should now target USD55.00 in the weeks ahead. Critical support is distant at USD47.00 a barrel.

Gold consolidates recent gains

Gold contented itself with choppy range trading overnight, finishing 0.37% higher at USD1950.00 an ounce as the US dollar retreated across the board. Today in Asia, gold has eased 0.25% lower to USD1945.50 an ounce in directionless trading.

Gold has clear technical support at USD1900.00 an ounce and USD1895.00 an ounce, the 100-day moving average. Unfortunately, given the rally yesterday’s pace, there is nothing but clear air between USD1900.00 and its current level. A series of highs between USD1965.00 and USD1975.00 an ounce denotes initial resistance, followed by USD2000.00 an ounce, where I expect heavy option-related selling to cap gains initially.

I expect gold to trade in a noisy USD1910.00 to USD1960.00 an ounce range over the next 24 hours as we await the Georgia Senate runoff outcome.

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