China energy buying spree, gold REBOUNDS

Oil consolidates after recent upswing

Crude prices are entering into consolidation mode as energy traders await the OPEC+ meeting on output.  Despite the energy crunch and calls from the Biden administration for a faster increase in output from OPEC+, many traders are anticipating them to stick to the November output plan.  OPEC+ could easily justify delivering more than the gradual 400,000 bpd increase in November and they probably should consider doing so.  OPEC+ has resisted caving into President Biden’s demands over the summer, but this time is different.  The energy crunch could trigger massive volatility and dampen global growth prospects, so OPEC+ should consider a tweak next week.

WTI crude is poised to consolidate here, especially as the strengthening dollar move takes a break.  The USD 70 level should prove to be key support for WTI crude, with the USD 76.70 level providing tentative resistance.

Crude prices turned positive after reports that China ordered top energy officials to secure supplies at all costs.  If China is happily paying any price for energy, this could intensify the energy crunch in Europe.  If this story is refuted, WTI crude could quickly give back these gains, but if it is affirmed, the summer highs will be breached.

Gold

Gold traders are scratching their heads today.  Gold is surging despite Treasury yields slight rise, a slightly weaker dollar as it gives back a tiny bit of this week’s gains, and while Congress drags the debate over spending, infrastructure spending, and the debt ceiling, down to the wire.  Some of gold’s gains are coming from investors seeking protection against the developments in Washington DC, but it is also happening because the gold market may have gotten a bit too short here.  This squeeze could have a little more to go.

If this gold rebound continues, sellers will likely emerge ahead of the USD 1780 level.  If the energy crunch gets worse, that could save gold from further downward pressure in the short-term.  The economic recoveries in Europe and Asia are vulnerable here and fears of USD 90 oil could trigger a massive reversal in interest rate hike expectations.

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