Oil up on cold weather, gold shrugs

Oil rockets higher on US weather

Oil prices powered higher overnight, lifted in part by the positive sentiment returning to equity markets, but mostly because of frigid weather sweeping the United States, pushing up the demand for heating. That saw Brent crude leap by 2.42% to USD56.35 a barrel, and WTI jump 2.60% to USD53.50 a barrel. With Asia facing much the same weather conditions in the North, oil has moved higher again today, Brent crude and WTI both adding 1.0% to USD56.90 and USD54.10 a barrel respectively.

OPEC+ begins a series of monthly technical meetings today although we expect no production changes to be announced, with quarterly targets already agreed. Oil markets will continue to be driven by demand expectations due to cold weather in the US and Northern Asia, especially after US inventories fell last week.

Despite the impressive rally overnight, both contracts remain range-bound, albeit at the top now. Brent crude has resistance at USD56.60 and USD57.40 a barrel, with support at USD54.50 a barrel. Clearance of USD57.40 opens the road to USD60.00 a barrel. WTI is testing resistance at USD54.00 a barrel this morning, followed by USD54.45. Support is at USD51.60 a barrel. A daily close above USD54.45 a barrel signals WTI’s next directional move has finally started, potentially targeting USD60.00 a barrel as well. US shale hedging via the futures market may make that process slower.

Gold stages unimpressive rally

With all eyes on the silver rally overnight, gold only managed a modest rally on its sibling’s coattails. Gold finished the overnight session just 0.70% higher at USD1860.70 an ounce, highlighting the speculative excess occurring in silver markets. The price action still leaves gold stuck in a broader USD1830.00 to USD1875.00 an ounce range, that has nicely covered the yellow metal for the past two weeks.

Despite the noise from silver, gold is giving no hints yet of its next larger directional move. Nevertheless, the convergence of the 100 and 200 daily moving averages, today at USD1850.90 and USD1877.80 an ounce respectively, suggests that a breakout is coming.

Gold has resistance at USD1875.00 an ounce, followed by the 100-DMA at USD1877.80 an ounce. The 200-DMA at USD1850.90 an ounce is an intra-day pivot point. That is followed by USD1831.50 and the January 18th spike to USD1802.50 an ounce.

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