Oil powers higher, gold steady

Oil prices, I don’t know what to say……

Reports that a Russian general has been killed in Ukraine seem to have been the excuse for Asia to lift prices once again this morning after the breathtaking price action overnight. Although some sense finally prevailed in Northern Hemisphere markets, Brent crude still finished 5.20% higher at USD 124.10 a barrel, and WTI 4.70% higher at USD 120.35 a barrel.

Russian scaremongering around USD 300 a barrel of oil may have also spooked Asian markets, but oil has given back some of its gains after Venezuela said the American visit was “cordial,” and talk is coming out of Europe that they will not unilaterally ban Russian energy imports. The latter makes complete sense as the reality is, that 7.50 million bpd of Russian exports, or even part of it, cannot be replaced in an already tight international market.

The US probably has more wiggle room in this respect. Its politicians could stop being NIMBYs and get real on shale and other extraction methods, even if it is for a few years. It could also kiss and make up with Saudi Arabia and/or Venezuela. Sometimes being a politician means choosing the least ugly horse in the glue factory, and I suspect a November wipe-out in the mid-terms will eventually trigger a survival instinct among the Democrats. For this reason, after an avalanche of USD 200 a barrel prediction I saw hit the wires yesterday, I don’t believe that this will happen. That said, I don’t think oil prices are falling much from here either.

My guestimates for the day’s trading range remain wide but real. Brent crude will potentially trade in a USD 120.00 to USD 130.00 a barrel range, and WTI between USD 116.00 and USD 126.00 a barrel.

Gold is still loving stagflation

Gold consolidated its gains overnight, finishing the session 1.35% higher at USD 1997.50 an ounce. The inability to take out USD 2000.00 overnight, despite several attempts, has prompted some fast-money positioning to head to the side-lines in Asia, as the newsreel remains relatively quiet. Gold has fallen 0.40% to USD 1989.50 an ounce in Asia.

There is likely to be plenty of barrier option-related selling around the USD 2000.00 region initially, making gains challenging initially. Additionally, gold appears to be following oil prices today, so if oil corrects lower again, the fast-money longs are likely to quickly retreat. A fall through USD 1980.00 an ounce could prompt a sharp, but temporary retreat.

The stagflationary factors that are so supportive of gold are persisting and will remain so. Once USD 2000.00 an ounce is cleared, the path to USD 2100.00 will be laid open. Intraday support lies at USD 1970.00 and USD 1940.00 an ounce.

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