Crude Oil Prices Hit 6-Month Low as Liquidation Heats Up

2017-05-05 05:11:00 Ilya Spivak

Talking Points:

Crude oil price drop to six-week low as selloff heats up
Gold prices continue to fall in FOMC meeting aftermath
US jobs, rig count and oil spec positioning data ahead

Crude oil prices continue to sink – hitting a six-month low in Asian trade – after suffering the largest daily decline since early March. The drop in the benchmark WTI futures contract was accompanied by the highest volume in two months.

Investors’ confidence in the ability of an OPEC production cut scheme to offset swelling swing supply has been eroding since mid-April. Liquidation accelerated after EIA reported that, among other things, US output rose for an 11th consecutive week. That’s the longest streak of back-to-back gains in over four years.

More of the same may be in store as Baker Hughes rig count data as well as the latest batch of CFTC speculative positioning statistics come across the wires. Another tick higher in the number of active extraction sites and signs of rapid unwinding of net-long exposure may reinforce selling pressure.

Gold prices retreated to a seven-week low as markets continued to reckon with the outcome of the FOMC policy announcement. The spotlight now turns to April’s US employment report. This is expected to show payrolls growth picked up last month after hitting a 10-month low in March.

The Fed has dismissed the first-quarter downturn in US growth as “transitory”, signaling that it’s appetite for rate hikes is undiminished. This means that anything shy of a dramatic disappointment is unlikely to offer the yellow metal much of a lasting lifeline.

What will drive crude oil and gold price trends through mid-year? See our forecasts to find out!

GOLD TECHNICAL ANALYSIS – Gold prices have suffered the largest two-day selloff since mid-December 2016. From here, a daily close below a chart inflection point at 1218.90 opens the door for a challenge of the 38.2% Fibonacci expansion at 1199.07. Alternatively, a move back above support-turned-resistance at 1241.50 paves the way for a retest of the 14.6% level at 1258.62.

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices are testing below support at 45.33, the 61.8% Fibonacci retracement. Confirmation of a break on a daily closing basis opens the door for a challenge of the 76.4% level at 43.00. Alternatively, a reversal back above the 50% Fib at 47.22 paves the way for a retest of 49.11 (38.2% retracement, trend line support-turned-resistance).