Oil eyes Ida, gold higher after Powell

Oil markets on hurricane watch

Oil markets are on hurricane watch this morning as Hurricane Ida smashes into the US Gulf of Mexico states, taking 95% of the region’s oil production and refining offline. On Friday, prices continued their mighty rally in anticipation of the hurricane, with Brent crude rising by 1.55% to USD 72.55 and WTI climbing by 1.40% to USD 68.65 a barrel. Both contracts spiked higher in early Monday trading as the hurricane made landfall but have retraced all of those gains to be almost unchanged at USD 72.80 and USD 68.55 a barrel, respectively.

OPEC+ also meets this week on September the 1st to discuss its production targets. Kuwait suggested that targets could be revised lower if needed providing some early support. With oil having rallied over 10.0% last week, leaving both contracts roughly in the middle of their two-month ranges (frisky though they have been), the pressure of probably off for the grouping to change their scheduled production increases. OPEC+ has shown in the past that they are very resistant to the tail-chasing noise of the prompt futures, and the curves themselves remain in backwardation.

Hurricane Ida will dictate oil’s near-term direction. If Ida weakens and its path of destruction is lower than expected, oil’s rally will temporarily lose momentum here. Similarly, if Ida’s impact is worse than expected, and we get ambiguous signals from OPEC+ officials, oil’s rally can continue, especially as risk appetite in general post-Jackson Hole, is firm.

I won’t even try to put any technical levels around oil today, there is far too much noise in the markets and the price action over the last two weeks is schizophrenic, to say the least. No one can complain about a lack of volatility, though. I will note the Brent crude bottomed at support at USD 64.60 a barrel last week, and the 200-DMA is approaching that point at 64.30. Similarly, WTI bottomed at a series of daily lows between USD 61.50 and USD 62.00 a barrel, with the 200-DMA not far away at USD 60.65. So, I would say with confidence that the lines in the sand for the greater oil price rally are around USD 64.50 and USD 61.50 a barrel. Intraday is a case of being nimble and having steely nerves and deep pockets.

Gold powers higher on Powell

Gold’s recovery rally from the early August long capitulation continued Friday after a suitably dovish Powell saw buyers flock back to precious metals as the US dollar plummeted. Gold finished the session 1.40% higher at USD 1817.50 and, most importantly, closed above the 100 and 200-DMAs. In Asia, gold trading has been moribund, with some long-covering pushing gold slightly lower to USD 1816.30 an ounce.

The Friday rally of over USD 25 an ounce pushed the yellow metal up through the 100-and 200-DMAs, today at USD 1810.00 and USD 1812.59 an ounce, respectively. They form gold’s first layer of support, followed by USD 1800.00 and USD 1785.00 an ounce, Friday’s lows. Gold has intra-day resistance at USD 1823.00, followed by a series of daily highs layered between USD 1830.00 and USD 1835.00 an ounce. A close above USD 1835.00 signals further gains to USD 1860.00 and onto USD 1900.00 an ounce in the days ahead.

However, as I have discussed above, there are plenty of potential potholes on a seemingly clear road higher this week. Month-end rebalancing flows, China PMIs, and the US Non-Farm Payrolls on Friday all have the potential to create short-term whipsaw price action. In the latter case, it could potentially turn the buy everything sells US dollar trade on its head if the data prints at 1.0 million-plus jobs this Friday.

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