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Oil Rebounds on Inventories Drop, Copper Weighed by China Stock Rout

Oil Rebounds on Inventories Drop, Copper Weighed by China Stock Rout

Nathalie Huynh,

Talking Points:

  • WTI oil rebounded after API reported falling inventories, eyeing EIA’s report
  • Gold elevated coming up to Fed’s minutes release
  • Copper suffered from a renewed Chinese stock rout

A renewed China stock rout started yesterday with the Shanghai Composite index closing down 6.17 percent, and today’s losses of up to 5 percent in the Asian morning. This is undoubtedly negative to commodities which are increasingly correlated to the health of the Chinese economy. This stock fall triggered talks that the government may pare back support for equity market, after an impressive property data on Tuesday and the Securities Finance Corporation’s intention to reduce stock buying announced last Friday.

WTI oil recovered up to 42.90 after a weekly report by the American Petroleum Institute showed that inventories dropped by 2.3 million barrels for the week ending Tuesday. Prices have since cooled down after the Iraq’s prime minister warned of a boost to its crude production in order to meet the needs of a growing population [in Iraq].

Coming up today is the much awaited weekly report from U.S. Energy Information Administration which coincides with the last trading day of the WTI September contract. The report is projected to show a fourth week of decline which would enhance support for WTI prices. Nevertheless, oil bearish outlook remains sticky with US inventories at 90 million barrels above the five-year average for this time of the year.

Gold remained elevated above a multi-day support level at 1109.82 ahead of the release of last Federal Reserve meeting’s minutes on Wednesday (US time), which may offer clues on the Fed’s intended timing of its first interest rate rise since 2006. Higher interest rates will dampen demand of the zero-yielding gold, hence any insight on the timing and trajectory of Fed’s hike will likely prompt reactions in bullion prices. Bloomberg calculated that the market currently projected a 48 percent chance of a September hike.

Copper plummeted to a fresh six-year low overnight after a renewed stock rout in China and it remained depressed today with the Shanghai Composite looking to another day of big loss. With another equity crisis in the making at the world largest consumer, copper’s bearish outlook is further affirmed.

GOLD TECHNICAL ANALYSIS – Gold stays elevated above a support level at 1109.82 and capped by last week’s high at 1126.63. Prices will likely fluctuate together with the market’s expectations of rate insight from the Fed’s minutes slated for Wednesday (US), while volatility remains subdued. The gold bulls and bears alike may keep watch of the support level for their stops and targets.

Oil Rebounds on Inventories Drop, Copper Weighed by China Stock Rout

Daily Chart - Created Using FXCM Marketscope

COPPER TECHNICAL ANALYSIS – Copper’s intraday prices sank below a support-turn-resistance level at 2.2930. There is little chance for prices to return to the region above it today and copper may get stuck in a range with a floor at 2.2640. The daily chart displays emerging signs of a downtrend resumption, however it is too early to call for bearish trades.

Oil Rebounds on Inventories Drop, Copper Weighed by China Stock Rout

15-minute Chart - Created Using FXCM Marketscope

CRUDE OIL TECHNICAL ANALYSIS The decline in WTI oil stopped around the 41.60 support level yesterday and WTI put on gains today with an upside bias. At top, the 10-day moving average comes in as resistance level at 43.13. Likewise, Brent oil paused above the 48.22 support level. However this increase has not yet indicated a rebound from the recent bottom, with momentum signal rather flat.

Oil Rebounds on Inventories Drop, Copper Weighed by China Stock Rout

Daily Chart - Created Using FXCM Marketscope

--- Written by Nathalie Huynh, Currency Strategist for DailyFX.com

Contact and follow Nathalie on Twitter: @nathuynh

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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