Crude Oil Prices May Fall as Markets Sour After Mnuchin G20 Debut

2017-03-20 02:25:00

Talking Points:

Crude oil prices may fall as markets sour after Mnuchin G20 debut
OPEC output cut extension may be discussed at Berlin energy summit
Gold prices look to Fed commentary for post-FOMC direction cues

Crude oil prices marked time, seemingly unable to reconcile conflicting comments from Saudi Arabia and Russia about the future of the OPEC output cut deal with some of the leading producers outside the cartel. The kingdom’s Energy Minister Khalid Al-Falih said his country was prepared to extend the accord beyond mid-year but his Russian counterpart Alexander Novak said it was too early to discuss doing so.

A gathering of industry bigwigs for the Energy Transition conference in Berlin may bring market-moving commentary early in the week. Otherwise, risk appetite may assert its influence over cycle-sensitive energy prices. That may bode ill for the WTI benchmark in the near term. S&P 500 futures trading significantly lower to start the week, suggesting that a risk-off mood may be setting in.

The markets’ sour mood may follow from worrisome headlines emerging out of a meeting of G20 finance ministers and central bank governors over the weekend. The final communique conspicuously dropped a pledge to resist protectionism, reportedly at the behest of new US Treasury Secretary Mnuchin. This fuels concerns that the Trump administration may upend international trade norms, hurting global growth.

Gold prices continued to edge higher as Treasury bond yields declined and the US Dollar touched the lowest level in five weeks. The move seemed to reflect lingering reverberations from the FOMC rate decision. The central bank raised rates as widely expected but offered nothing to propel the hawkish narrative beyond status-quo projections, sending the yellow metal upward (as expected).

From here, a thin economic data docket is likely to put Fed-speak in the spotlight as comments from Charles Evans, President of the US central bank’s Chicago branch, come across the wires. Rhetoric reiterating policymakers’ intent to continue raising rates this year may remind investors that the Fed is alone among its G10 peers in pursuing stimulus withdrawal. That may help cap gold’s gains.

How did our gold and crude oil forecasts fare in the first quarter? Find out here !

GOLD TECHNICAL ANALYSIS – Gold prices may continue to recover after prices narrowly closed above resistance at 1227.99, the 23.6% Fibonacci expansion. From here, a further push above the 38.2% level at 1248.58 targets the 50% Fib at 1265.23. Alternatively, a turn back below 1227.99 – now recast as support – paves the way for a retest of the 14.6% expansion at 1215.29.

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices continue to mark time in familiar territory. From here, a break below the 50% Fibonacci retracementat 47.22 exposes the 61.8% level at 45.33. Alternatively, a daily close above the 38.2% Fib at 49.11 sees the next upside barrier at 51.44, the 23.6% retracement.