Oil rallies, gold edges higher

Oil prices rally overnight

Oil prices rallied sharply overnight as OPEC rebuffed increasing production above already agreed amounts, and Russian oil production fell below 10 mio barrels per day. Putin’s Ukraine negotiation dead-end comments also dampened hopes that a negotiated settlement could relieve tight energy markets.

Brent crude rallied 5.55% higher to USD 104.85, and WTI leapt 6.10% higher to USD 101.00 a barrel. In Asia, oil prices are almost unchanged after China imports slumped today. Asian buyers, having been able to pick and choose dips to buy into over the past week, seem reluctant to chase prices at these levels. That implies plenty of interest will be around to buy on any dips.

With the latest scheduled OPEC+ increase, and US and IEA SPR releases out there and priced in, it seems that China continues to drive the bearish price action. That impact may be waning now as OPEC refuses to increase production, and the situation in Eastern Europe continues to darken. Brent and WTI have fallen to the bottom of my ranges, but I expect Brent to remain in a choppy USD 100.00 to USD 120.00 range, with WTI in a USD 95.00 to USD 115.00 range. Brent crude has further support at USD 96.00, and WTI at USD 93.00 a barrel.

Gold charges higher overnight

Despite a much stronger US dollar, and US yields holding steady, gold prices charged higher once again overnight. Gold rose 0.63% to USD 1966.50 an ounce, gaining another 0.26% to USD 1971.60 in Asia today.

I will admit to scratching my head about the longevity of the gold rally at this stage. Either the gold bugs are walking into a huge bull trap that will end in tears, or the gold market is telling us the inflation and geopolitical risks are much higher than we are seeing in the headlines. I know which side my money is on, but one must respect the upward momentum until it turns.

Gold has initial resistance at USD 1980.00, the overnight high. After that, a test of USD 2000.00 is entirely possible, although I believe option-related selling there will be a strong initial barrier. If that is cleared, gold could gap higher to USD 2020.00 an ounce quite quickly.  A retreat through USD 1940.00 will signal a whipsaw move lower, chopping out the short-term money. Failure of USD 1915.00 will signal a retest of important support at USD 1880.00 and possibly USD 1800.00 an ounce. I can honestly say I don’t know which scenario will be the winner at this moment.

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