Talking Points:

  • Crude oil prices rise on OPEC deal but follow-through may fizzle
  • Gold prices fall on ebbing credit risk as Deutsche Bank shares rise
  • Hawkish Fed comments, US GDP data may weigh on commodities

Crude oil prices rallied after OPEC unveiled the outlines of a deal capping output in a range of 32.5-33 mbd. Implementation details – including the assignment of output targets for individual cartel members – remain undecided and will be addressed at the group’s meeting in November. The accord was made possible after Saudi Arabia agreed to grant rival Iran and exception. The markets’ initial optimism may give way to a degree of skepticism in the days and weeks ahead however, undermining upside follow-through.

OPEC is far from the singularly dominant supplier that it used to be and any deal will probably falter if it fails to co-opt other large producers, notably Russia. Supply from the US is also on the rise, with the number of active rigs hitting a seven-month high last week. Finally, the deal may yet unravel if OPEC members eager to recover from prior disruptions – Iraq, Libya and Nigeria – balk at the output targets on offer next month.

Gold prices continued to edge lower as the TED spread measure of credit risk declined amid seemingly easing worries about beleaguered German lender Deutsche Bank. The firm’s shares rose 3.2 percent, marking the largest gain in nearly weeks. Fears that Deutsche’s troubles may translate into broader bank sector instability fueled demand for cash as well as alternative stores of value.

The down move may continue amid firming Fed rate bets if upcoming commentary from central bank officials echoes Chair Yellen’s near-promise of tightening in December, a position she reiterated yesterday. Remarks from three branch Presidents (George, Harker and Lockhart) and Governor Powell are in focus. An upgrade of the second-quarter GDP growth rate from 1.1 to 1.3 percent may compound selling pressure.

What do crude oil and gold price patterns say about on-coming trends? Find out here!

GOLD TECHNICAL ANALYSISGold prices continue to edge lower after being rejected at trend line resistance set from early July. A daily close below support in the 1303.62-08.00 area (May 2 high, 38.2% Fibonacci retracement) targets the 50% level at 1287.29. Alternatively, a push above the trend line – now at 1340.73 – exposes double top resistance at 1367.15.

Crude Oil Prices May Struggle to Extend OPEC-Triggered Rally

CRUDE OIL TECHNICAL ANALYSISCrude oil prices breached resistance capping gains since late August. From here, a daily close above the 50% Fibonacci expansion at 47.61 exposes the 48.77-97 area (61.8% level, August 22 high). Alternatively, a reversal back below the 46.26-46 zone (trend line, 38.2% Fib) targets the September 27 low at 44.16.

Crude Oil Prices May Struggle to Extend OPEC-Triggered Rally

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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