Oil extends losses on COVID fears, gold fights for life

Oil takes  a tumble

Oil prices crumbled as the crude demand outlook looks like it could get slashed after the WHO advised governments to take steps to curb COVID-19 transmissions as the new wave makes its way across Europe and the US. ​ Crude just can’t catch a break as all the headlines are turning bearish. ​ Earlier weakness for oil stemmed from Heathrow Airport capping travel, growing European recession fears following collapsing German investor confidence, and rising fears that Shanghai will see a second lockdown.

The technical selling for WTI crude was strong from the break of the USD 100 level and that should end up being decent resistance over the short-term. ​ Barring a major supply disruption, oil looks like it is going to trade sub-USD 100 for a while until the crude demand outlook improves. ​ Right now, China looks like it might go back into lockdown mode, Europe is rushing its ways to slower crude demand as a recession looms, and the US economy is slowing down fairly quickly. ​

Oil ignored an OPEC report that shows demand quickly outgrowing supply. Eventually, when the short-term demand outlook stabilizes, energy traders will pay closer attention to the tight outlook for oil in 2023. ​

Oil will eventually find its way above the USD 100 level, but right now it looks like it found a home in the mid-USD 90s. ​

Gold/FX

Gold prices are holding on to dear life as the dollar rally hits a major marker. ​ A 20-year low for the euro against the greenback is massive news in FX as currency traders undoubtedly see a widening interest rate differential. ​ The ECB will have a very short tightening cycle, while the Fed appears to be about halfway through theirs. ​ Dollar dominance could last a little while longer, but some exhaustion is settling in after EUR/USD hit parity. ​ A euro rebound towards 1.0150 may occur before we see fresh lows. ​ This is looking like the classic FX move where everyone buys into the move and then once the key level is tested they close out positions. ​ The euro could tumble another 200 pips against the dollar if recession fears intensify for Europe. ​ ​ ​ ​

Gold will eventually see some safe-haven flows but that won’t happen until a firm dollar top is made. ​ Gold is trying to hold onto the USD 1700 level and that will likely be tested with a very hot inflation report tomorrow. ​

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