Crude Oil Prices Drop as US Politics Undermine Market Confidence

2017-05-17 05:37:00 Ilya Spivak

Talking Points:

Crude oil prices follow stocks lower as risk appetite sours
Gold prices advance as haven flows boost bonds, sink yields
US politics may overshadow EIA data, OPEC commentary

Crude oil prices declined even as an IEA report endorsed OPEC-led production cut efforts to rebalance the market awash in excess supply and Iraq backed moves to extend the scheme. The WTI contract followed stocks downward, hinting that eroding risk appetite sapped support. Losses were compounded after API reported that US inventories rose by 882k barrels last week.

Investors’ dour mood was on full display in the precious metals space as well. Gold prices rose as haven-seeking capital flows poured into Treasury bonds, pushing yields downward. The priced-in Fed rate hike path likewise flattened, pulling the US Dollar downward. Not surprisingly, this bolstered the relative appeal of anti-fiat and non-interest-bearing assets.

Looking ahead, the official set of EIA inventory numbers is expected to show a draw of 2.47 million barrels. A print closer to the API estimate may compound selling pressure. Comments emerging from a meeting of the OPEC economic commission in Vienna may help limit losses however if it appears as though support for output cut extension is growing.

Churning sentiment trends may overshadow other considerations however. European and US stock index futures are pointing sharply lower in late Asian trade, hinting that a risk-off mood is set to continue. That may keep cycle-sensitive assets including oil under pressure. It may likewise see continued weakness in bond yields, offering gold a further lift.

Retail traders are betting on gold price gains. Find out here what this hints about coming trends!

GOLD TECHNICAL ANALYSIS – Gold prices are enjoying the longest winning streak in a month having turned upward after producing a bullish Morning Star candlestick pattern, as expected. A break of support-turned-resistance at 1241.50 confirmed on a daily closing basis exposes the 14.6% Fibonacci expansion at 1258.62. Alternatively, a reversal below a chart inflection point at 1217.70 targets the 38.2% level at 1199.07.

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS – Crude oil put in a bearish Dark Cloud Cover candlestick following a retest of trend line support-turned-resistance set from early August 2016, hinting a turn lower may be ahead. A daily close below the 14.6% Fibonacci expansion at 48.18 exposes the 23.6% level at 47.28. Alternatively, a push back above the 50% Fib retracement at 48.77 targets the trend line, now at 49.40, followed by the 61.8% threshold at 49.94.