Crude Oil Prices May Struggle to Extend Near-Term Advance

2017-09-15 05:03:00

Talking Points:

Crude oil prices may struggle to extend IEA-inspired gains in the near term
What will drive longer-term crude oil price trends? See our guide to find out
Gold prices may overlook US retail sales, UofM data as FOMC looms ahead

Crude oil prices continued to push higher, with buyers seemingly still encouraged by an IEA demand forecast upgrade published earlier in the week. A number of minor headlines may have added to support. Output from China has reportedly dropped to an eight-year low of 3.77 million barrels per day and compliance with an OPEC-led production cut scheme is said to have increased to 96 percent in August.

Weekly Baker Hughes rig count statistics and the CFTC speculative positioning report are still due to cross the wires before the week-end, but these are rarely potent market movers. While this seemingly leaves the door open for upside continuation, investors may be reluctant to offer further directional commitment in the near term and opt for profit-taking, capping WTI gains at least until next week.

Gold prices proved surprisingly resilient even as US CPI data showed inflation accelerated more than economists expected in August. The headline year-on-year growth rate registered at 1.9 percent, the highest in three months. Median forecasts pointed to a more modest 1.8 percent result ahead of the release. The US Dollar also declined against its major counterparts.

This response seems somewhat counter-intuitive, especially since the priced-in 2017 Fed rate hike outlook duly steepened and front-end Treasury bond yields rose in the CPI report’s aftermath. Perhaps investors saw the passing of key event risk as an opportunity to rebalance exposure to Fed-sensitive assets closer toward neutral ahead of next week’s much-anticipated FOMC policy announcement.

From here, US retail sales and University of Michigan consumer confidence figures enter the spotlight. Both are expected to produce signs of ebbing vigor, through upside surprises echoing broad improvement in US data outcomes since mid-June seem like a distinct possibility. Only very dramatic deviations seem likely to cause a stir if markets are truly FOMC-focused at this stage however.

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GOLD TECHNICAL ANALYSIS – Gold prices continue to hover above support in the 1317.62-21.51 area (23.6% Fibonacci retracement, trend line). A daily close below it targets the 1295.46-99.25 zone (38.2% level, double top) next. Alternatively, a reversal back above the 14.6% Fib at 1335.24 exposes the September 8 high at 1357.50 anew.

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices are testing the August 1 high at 50.40, with a daily close above that paving the way for a challenge of the May 25 top at 51.97. Alternatively, a turn back below trend line resistance-turned-support at 49.10 exposes the September 11 low at 46.98.