Oil rises on bad weather, gold steady

Weather and strike risks lift oil prices

Oil had a robust overnight session as the impending arrival of Hurricane Delta, and the Norwegian oil workers’ strike combined to squeeze prices higher. Brent crude rose 3.10% to USD43.45 a barrel, and WTI rose 3.35% to USD41.45 a barrel.

Hurricane Delta has been strengthening and is due to make landfall in Louisiana later this evening with winds and storm surges also slamming into Texas and Mississippi. Norway’s oil production is now expected to fall by 1 million barrels a day as the strike continues.

There are, however, threats to the oil rally on both fronts. Norway’s strikers are apparently open to arbitration, and if Hurricane Delta passes without too much incident, production could quickly restart in the US Gulf of Mexico region. Oil prices have moved higher on short-term supply disruptions, with the broader global supply/demand picture unchanged. Therefore, oil’s rally is built on sandy foundations, and not structural ones. The correction lower could be ugly if the above comes to pass.

Brent crude has resistance at USD43.80 a barrel, the mid-September highs, and then formidable resistance at USD46.00 a barrel. WTI is testing resistance here at USD41.45 a barrel, with challenging longer-term resistance at USD44.00 a barrel. Being long near the upper resistance zones is a trade only for the brave, in my opinion. The risks are skewed at these levels for a substantial correction lower next week.

The return of China today has had no noticeable new buyers at these levels. In fact, both contracts have eased 0.70% this morning on short-term profit-taking, suggesting that mainland buyers are reluctant to chase prices higher at these price levels.

Haven buying lifts gold in Asia

Gold rose modestly by 0.30% to USD1893.50 an ounce in New York trading. The rally has accelerated this morning though, with gold racing 1.10% higher to USD1911.00 an ounce in Asia.

The return of pent-up China buying after an 8-day holiday partially explains the rise in prices. More likely, though, Asian investors are loading up on gold to head weekend portfolio risk, with financial markets at the mercy of the whims of the US presidential Twitter account.

Gold is likely to stay firm in Asia with further gains possible as European investors will likely adopt the same strategy. Gold has resistance at USD1920.00 an ounce, followed by trendline resistance and the 50-day moving average, both at USD1940.00 an ounce. Gold should find support on any dips to the USD1895.00 region.

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