Crude Oil Prices Surge as Trump, Xi Meeting Looms Ahead

Talking Points:

• Crude oil prices rise on Caribbean stockpile draw, API inventory drop
• Pre-positioning for Trump/Xi meeting may help WTI continue to rise
• FOMC minutes may act as catalyst for bearish gold price chart setup

Crude oil prices soared, benefiting from an assortment of supportive headlines. First, Bloomberg reported that the vast stockpiles stashed across islands in the Caribbean – a defining feature of the global supply glut plaguing markets in recent years – are finally starting to be drawn down. Then, API said that US inventories fell by 1.83 million barrels last week.

From here, official EIA inventory data is in focus. A small outflow of 70k barrels is expected. Prices are likely to build on recent gains if the outcome registers closer in line with API’s estimate. Pre-positioning ahead of Thursday’s meeting between US President Trump and his Chinese counterpart Xi Jinping may also be supportive.

China became the largest importer of US crude in February according to the latest figures on cross-border sales form the Census Bureau. If President Trump echoes the adversarial rhetoric he adopted as a candidate in his meeting with Xi, a rift in the two countries’ trading relationship may open. That may derail US oil sales to the world’s second-largest economy, reducing global supply.

Gold prices touched a five-week high as risk aversion pushed Treasury bonds upward and weighed on yields, boosting the relative appeal of non-interest-bearing assets. Gains were mostly erased by the end of the trading day however as US shares recovered from session lows to close fractionally higher, throwing risk-off dynamics into reverse.

The spotlight now turns to minutes from the March FOMC meeting. The yellow metal may turn lower if the document suggests that most central bank officials’ forecast for the 2017 rate hike path does not take into account the would-be impact of inflationary fiscal policy. If the case for tightening looks independent of Trump administration’s ability to fulfil campaign promises, the markets’ outlook may turn more hawkish.

What will drive crude oil and gold prices in the next 3 months? See our forecasts and find out!

GOLD TECHNICAL ANALYSIS – Gold prices put in a Shooting Star candlestick below pivotal resistance at 1263.87 (February swing high, trend line), hinting a move lower may be brewing ahead. Negative RSI divergence bolsters the case for a downside scenario. A daily close below the 14.6% Fibonacci expansion at 1236.83 opens the door for a test of the 23.6% level at 1220.17.

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices overturned bearish reversal cues noted yesterday, pushing to the highest level in nearly three months. From here, a daily close above the 38.2% Fibonacci expansion at 52.04 exposes the 50% level at 53.57. Alternatively, a reversal back below the 23.6% Fib at 50.14 – now activing as support – paves the way for a retest of the 14.6% expansion at 48.98.

Chart created using TradingView

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

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