Oil gains ground, gold fades

Oil prices rally on supply concerns

Oil prices rallied once again overnight as a Reuters story over Saudi Arabia and UAE capacity constraints, as well as disruption of supplies from Libya and Ecuador overrode US recession concerns. Another lesson is that markets ignore crude futures backwardation at their peril when trying to pick a top in oil prices. Brents’s backwardation actually widened during the sell-off early last week.

Brent crude rose by 2.60% to USD 115.40 overnight, gaining another 0.90% to USD 116.300 a barrel in Asia today. WTI rose by 2.30% to USD 110.00 overnight, rallying another 0.80% higher to USD 110.70 a barrel in Asia. The rhetoric around declaring victory in Shanghai over omicron seems to be prompting Asian traders to continue buying this morning.

Notably, Brent crude tested and held its rising longer-term support line, today at USD 108.00, in the early part of last week. Nor was its 100-day moving average (DMA) tested either. That is a technical development that should be respected. Brent crude has support at USD 111.35, its 100-DMA at USD 109.40, and the six-month support line at USD 108.00. It is testing resistance here at USD 116.50, and a daily close above here would clear the way for a retest of USD 120.00 a barrel.

WTI’s technical picture has improved markedly overnight, regaining its rising 2022 support line today at USD 107.50 a barrel and initial support. A close above USD 111.25 this evening clears the way for a larger rally to USD 116.00 a barrel.

Gold fades overnight

Gold attempted to rally overnight as the G-7 announced a ban on Russian gold imports. That was a rubber stamp exercise though, and although gold climbed intraday, it faded ahead of USD 1840.00 an ounce. It then proceeded to give back all those gains, finishing 0.25% lower at USD 1823.00 an ounce. Although US yields rose slightly, the US dollar was generally slightly weaker overnight, making the price action by gold even more disappointing. It appears that the downside is increasingly gold’s path of least resistance.

Gold has resistance at USD 1840.00, USD 1860.00, and USD 1880.00, the latter appearing an insurmountable obstacle for now. Support is at USD 1805.00 and then USD 1780.00 an ounce. Failure of the latter sets in motion a much deeper correction, potentially reaching USD 1700.00 an ounce. On the topside, I would need to see a couple of daily closes above USD 1900.00 to get excited about a reinvigorated rally.

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