Oil slides on OPEC+ report, gold steady

Oil sinks in Asia on FT/OPEC+ story

Oil prices have fallen in Asia today after the Financial Times ran a story that Saudi Arabia has indicated to western allies that it could raise oil production if Russian output fell substantially. Overnight, oil gave back all its gains after a WSJ story released yesterday morning suggested that OPEC+ might exempt Russia from its production quotas.

Taken in totality, today’s OPEC+ meeting is assuming far greater importance for global markets than the US Non-Farm payrolls tomorrow. We can expect a very binary outcome from today’s meeting. If OPEC+ does nothing but raise production by the 433,000 bpd already planned, oil prices are likely to rally sharply, with knock-on impacts in Asia and Europe equity markets. If Russia is exempted and Saudi Arabia and the UAE (the only two real swing producers), signal they will step up production, we can expect oil prices to fall sharply.

Overnight, Brent crude finished just 0.33% lower at USD 115.85, having tested USD 118.50 a barrel intraday. In Asia, it has gapped lower, falling by 1.50% to USD 114.15 a barrel. The overnight close at USD 115.85 is immediate resistance, with support at USD 112.00. There is a very well-defined rising 6-month support line on Brent crude at USD 104.50, with the 100-DMA also nearby. A daily close below this point should allow Brent crude to retest USD 100.00 a barrel.

WTI also tested higher overnight, rising to USD 117.85 a barrel, before giving back all its gains to close 0.40% lower at USD 114.80 a barrel. In Asia, WTI has also fallen by 1.50% to USD 113.00 a barrel. Immediate resistance is the overnight close at USD 114.80, with support at USD 111.60 and then USD 108.00 a barrel. WTI’s 6-month support line lies at USD 102.50, followed by the 100-DMA at 101.00. Failure of these levels signals a move back to the mid-90s in the first instance.

Gold defies a stronger US dollar

Gold defied expectations overnight, shrugging off slightly firmer US yields and a higher US dollar to record a 0.50% gain to USD 1846.65 an ounce. The price action has left me scratching my head a bit, and I can only assume some risk aversion flows lifted gold as the hot money retreated from other asset classes. In the context of gold’s overall performance, I would need to see quite a few more days like this before changing my bearish outlook, with the gains overnight, insignificant in scope. In Asia, gold has eased infinitesimally to USD 1845.00 an ounce.

Overall, gold remains confined to a USD 1830.00 to USD 1870.00 range, and one could argue a USD 1840.00 to USD 1860.00 an ounce range. Gold’s inability to rally on recent US dollar weakness remains a primary concern. Gold has resistance at USD 1870.00 and then USD 1900.00, where I suspect there will be plenty of options-related selling. Support is at USD 1830.00 and then USD 1780.00 an ounce, and I do not discount a disorderly retreat if the latter fails.

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