Oil rallies in Asia
Oil prices ended last week on a firm note as ever-rising natural gas prices continue to raise oil and coal prices as energy substitutes. With OPEC + struggling to meet its current production targets and U.S. shale production returning to a snail’s pace from last year, global energy problems will continue as the northern hemisphere’s winter approaches, leaving the case for higher oil construction. Brent crude and WTI closing 1.0% higher at USD 78.00 and USD 73.95 a barrel.
With news over the weekend that China is enforcing energy brakes by closing factories and other limits for heavy energy users, Asia is once again in a hurry, aided by Britain’s energy distribution problems and winter fears. Oil is up sharply again, Brent crude and WTI are up 1.20% to $ 79.00 and $ 74.85 a barrel, having been nearly 2.0% higher at one stage this morning.
Markets are nervous about supply limits, no more than Asia, which imports most of its energy needs. That alone should mean that price drops will have many buyers in line. Despite the Relative Strength Indices (RSI) approaching too much buying on both contracts, the fear index and physical demand equation indicated that a $ 80.00 handle on Brent crude will occur sooner rather than later. Next week’s OPEC + JMMC meeting is now of much greater importance, although I don’t expect OPEC + to indicate any change to their current production plans.
Brent crude will have resistance at $ 79.50, the highest daily, followed by $ 80.00 a barrel. It then has to move quickly to USD 82.00, and accumulation to the 2019 highs around USD 87.00 a barrel in the previous days is not unthinkable. The technical image of Brent crude remains constructive as long as prices remain above USD 76.00 a barrel.
Rising with resistance at $ 74.20, WTI traded up to $ 75.30 during the day, marking initial resistance. Its next targets are USD 75.50 and USD 77.00 a barrel, a significant double top and the 2018 and 2021 high that would likely see USD 80.00 tested fairly quickly. Only a failure of $ 70.00 a barrel obscures the bullish technical outlook.
Gold remains in limbo
Gold has grown in Asia today, but that’s probably a move from the strong rallies in palladium and platinum this morning, itself a function of decent mass industrial metals. On Friday, increased fear sentiment continued to give modest support to gold as it rose 0.47% to $ 1750.50 an ounce. In Asia, the broader commodity rally raised gold another 0.47% higher to $ 1758.50 an ounce even as Evergrande nerves declined.
Given that U.S. yields and the U.S. dollar have risen over the past week, always negative for gold prices today, it measures the strength of commodities and the fear in markets that gold is now nearly 1.0% higher than the last two sessions . If the nerves of Evergrande and China continue to soften, it is likely that gold will again find headwinds.
Gold has support around USD 1740.00 an ounce, with resistance at USD 1780.00 an ounce. That range will likely cover trading for most of the week, but I believe a gold rally remains delicate and a move lower to USD 1700.00 an ounce will eventually occur, especially if the Fed declines.