Oil and gold pare losses

Lots of noise, little substance for oil

Oil prices did the Neville Chamberlain’s “peace in our time” gag reflex overnight after Russia’s “reduced operations” comments. Oil prices traded in a 10-dollar range and initially tumbled after the announcement, Brent crude touching USD 105.00, and WTI USD 98.50 a barrel. A lower than expected API Crude Inventory number along with no signs of OPEC+ largesse quickly saw fundamentals reassert themselves, Brent crude rising to finish 1.70% higher at USD 111.10, and WTI rising 1.60% to close at USD 105.10 a barrel.

In Asia, oil is having a relatively quiet session with Brent crude and WTI rising just 0.30% to USD 111.40 and USD 105.45 a barrel. It seems that Asia’s usual buy-the-dip reflex is taking a temporary back seat. Regional buyers may be hoping further Ukraine developments will give them better levels to buy. As outlined above, they are likely to be disappointed.

Oil markets will be watching for announcements from OPEC+ over the next 48 hours regarding production hikes. Realistically, the best they can expect from the rhetoric seen so far, is the pre-agreed 400,000 bpd increase. US official Crude Inventories will be closely watched as well after the API number was lower than expected. If official inventories also disappoint, that may put a floor on prices. I still expect Brent to trade in a choppy USD 100.00 to USD 120.00 range, with WTI bouncing around in a USD 95.00 to USD 115.00 a barrel range.

Gold cleans out speculative long positions

Gold prices tumbled after the Russia announcement yesterday, falling USD 30 an ounce at one stage to USD 1890.00 an ounce, before reversing all those losses as US yields and the US dollar fell. Gold finished just 0.17% lower at USD 1919.50 an ounce. The price action looked very much like a culling of nervous long positions, with fast money exiting after support at USD 1915.00 failed.

Despite the recovery overnight, gold’s price action remains soft. In Asia it has risen by 0.40% to USD 1927.50 an ounce, presumably as fast money chases the market higher once again. Gold could maintain these gains if the US dollar remains soft; otherwise, failure of USD 1915.00 likely sees a wash, rinse, repeat price action of yesterday. A sustained break of the USD 1880.00 region will probably trigger a capitulation trade, potentially pushing gold down to USD 1800.00 an ounce.

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