Talking Points:
- Crude oil prices drop to five-week low after key support break
- Gold prices mark time, waiting for the FOMC meeting outcome
- Tone of Fed policy statement, EIA inventory data now in focus
Crude oil prices sank to the lowest level in five weeks, building on a technical breakdown noted yesterday. The drop began after energy giant ConocoPhillips reported first-quarter results that raised doubts about the lasting efficacy of an OPEC scheme to cut production and boost prices.
While the company managed a profit of $0.62 cents per share – the first positive result in two years – the details of the report looked ominous. Putting aside the positive contribution from divestment of assets in Canada and New Mexico as well as other one-off items, a loss of $0.02 was recorded.
This fell short of consensus forecasts calling for a flat result once special considerations were taken out of the equation. It also seemed to be interpreted to signal of general weakness in the industry as a whole, implying that price stabilization since early 2016 was doing little to practically improve fundamentals.
Crude was pushed further downward after Saudi Deputy Crown Prince Mohammed bin Salman said non-oil revenues exceeded expectations in the first quarter, hinting that the kingdom may not be as keen to pursue an extension of the OPEC supply reduction accord expiring mid-year.
The weekly API inventory flow data helped prices recover from session lows, reporting that stockpiles shed 4.16 million barrels last week. The spotlight now turns to official inventory numbers from the EIA. Prices may correct higher if the outcome is close to API’s estimate versus the 2.9 million barrel draw expected.
Gold prices marked time, waiting for the FOMC policy statement to cross the wires before making its next move. A sanguine tone despite slowing US growth in the first quarter may reinforce the likelihood of a rate hike in in June, sending the metal lower. A newly cautious posture may be supportive however.
How will the Fed rate decision impact gold? Join the webinar covering the announcement to find out!
GOLD TECHNICAL ANALYSIS – Gold prices paused to consolidate losses after sinking to a three-week low. From here, a daily close below the 1235.91-41.50 area (October 7 2016 low, 23.6% Fibonacciexpansion), exposes a horizontal inflection point at 1218.90. Alternatively, a reversal back above the 14.6% Fibat 1258.62 targets falling trend line resistance at 1285.75.
Chart created using TradingView
CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices continued to push lower after breaking nine-month rising trend support. A daily close below the 47.08-69 area (March 22 low, 76.4% Fibonacci expansion) opens the door for a challenge of the 100% level at 45.82. Alternatively, a reversal back above the 61.8% Fib at 48.85 – now recast as resistance – paves the way for a retest of the 50% expansion at 49.78.
Chart created using TradingView
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
To receive Ilya's analysis directly via email, please SIGN UP HERE
Contact and follow Ilya on Twitter: @IlyaSpivak
