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Oil consolidates post-Biden rally

Oil prices were almost unchanged overnight and remain so in muted Asian trading. Brent crude is trading at USD 82.35 today, with WTI trading at USD 78.35 a barrel. US official Crude Inventories rose unexpectedly by 1 million barrels overnight, temporarily capping gains. Prices were supported though, as markets turn their attention to the OPEC+ meeting next week and any possible response to the Biden-led SPR release from across the globe.

The OPEC+ JMMC meets on November 30th, with the full meeting occurring on 2 December. Chatter is increasing that OPEC+ may less-than-subtly retaliate by slowing the pace of monthly production increases, particularly as their own data indictors a daily surplus in the world by early next year. But the fact that US production has now risen back to 11.5 million barrels a day, and yet oil prices remain near highs, suggests its underlying fundamentals remain strong, especially with OPEC+ compliance above 100%. Notably, the oil futures backwardation curve has flattened as hedgers pile into far-dated contracts, implying that expectations of future oil prices remain well anchored to the higher side.

I do not expect OPEC+ to dial back on production hikes next week in retaliation. The grouping is nothing if not pragmatic. From a geopolitical perspective, rubbing salt in the wounds of their largest customers would be counterproductive although we can expect some peripheral noise from bay boys, Russia and Iran. The high compliance level by OPEC+ implies that the grouping is pumping as fast as it can and will probably struggle to meet increased target allocations anyway, with only Saudi Arabia, the UAE and Iraq having swing production capacity. Taken in totality, prices will remain solidly supported on material dips, as we have seen over the past week.

Brent crude is testing resistance at USD 83.25 a barrel. Support is at USD 81.80 followed by USD 78.60 and USD 75.00 a barrel with the 100-DMA lurking at USD 76.90. WTI has traced out a triple top around USD 79.30 a barrel. That is followed by USD 80.00 and USD 82.00 a barrel. Support is at USD 78.00 and USD 74.85 a barrel, followed by the 100-DMA at USD 74.35.

Gold consolidates near its weekly lows

Gold traded sideways overnight, with a slight flattening of the US yield curve allowing it to finish unchanged at USD 1788.60 an ounce. In Asia, some risk-hedging and a slightly lower US dollar has seen it climb a modest 0.20% higher to USD 1792.20 an ounce. In all likelihood, with the US on holiday today and many in the US making a long weekend of it, gold is likely to range between USD 1780.00 and USD 1810.00 for the rest of the week.

If US yields remain firm gold will be vulnerable to further losses, and it faces a challenging technical outlook in the short term. The 50-day, 100-day, and 200-day moving averages are clumped together at the present level between USD 1789.50 and USD 1793,50 an ounce. That is followed by USD 1800.00 and USD 1810.00 an ounce. Support is nearby at USD 1780.00 an ounce and failure will signal a retest of USD 1760.00 and USD 1740.00 an ounce.

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