Crude Oil Prices Vulnerable as US Jobs Data Interrupts OPEC Rally

2016-12-02 05:35:00

Talking Points:

Crude oil prices continue to rise after OPEC output cut deal
Gold prices dip to 10-month low but sellers lose momentum
US jobs data may boost Fed rate hike bets, sink commodities

Crude oil prices continued to push higher as markets continued to on-board a last-minute OPEC output cut accord. The WTI benchmark has posted the largest two-day rally in 11 months. Participation from key non-OPEC producers is the next important hurdle in the fight to draw down a deep supply glut. Russia has vaguely pledged to cut output by as much as 300k b/d but did not specify implementation details. Talks with major suppliers outside the cartel are expected to take place in Doha next week.

In the meantime, US economic news-flow may retake the spotlight as November’s employment data cross the wires. Economists expect a nonfarm payrolls gain of 180k, an outcome broadly in line with near-term trends. The jobless rate is seen holding unchanged at 4.9 percent. US data outcomes have increasingly improved relative to consensus forecasts since mid-October. A similarly upbeat result may amplify upward pressure on 2017 Fed rate hike bets, sending US Dollar-denominated oil prices lower as the greenback rallies.

For their part, gold prices are likewise vulnerable to a further steepening of the projected FOMC rate hike path. The inability to sustain yesterday’s intraday losses even against the backdrop of a better-than-expected ISM manufacturing survey is a bit worrisome however. Gold’s ability to hold up even as the priced-in 2017 policy trajectory shifts to the most hawkish since January may mean volatility risk is asymmetrically tilted to the upside. That may reflect exhaustion after weeks of selling in the aftermath of the US presidential election, hinting that a large corrective upswing is anxiously waiting for a catalyst.

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GOLD TECHNICAL ANALYSIS – Gold prices remain under pressure but the bears are struggling to build lasting momentum. A sustained push below the 123.6% Fibonacci expansionat 1171.83 sees the next downside barrier at 1152.30, the 138.2% level. Alternatively, a move back above the 100% Fib at 1203.40 exposes the 76.4%expansion at 1234.97.

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices are back to testing resistance that has capped the upside below the $52 figure since mid-year. Breaking above the 51.64-91 area (double top, 76.4% Fibonacci expansion) on a daily closing basis exposes the 100% level at 54.92. Alternatively, a reversal below the 61.8% Fibat 50.05 targets the 50% expansion at 48.55.