Crude Oil Prices May Struggle Even as OPEC, Allies Extend Cuts

2017-11-30 08:30:00

Talking Points:

Crude oil prices may struggle even as OPEC, allies extend output cuts
Gold prices look to PCE figures, Senate tax cut vote for direction cues
How did our gold and crude oil forecasts hold up in Q4? Find out here

Crude oil prices are firmly focused on the outcome of an OPEC meeting getting underway in Vienna. The cartel and a group of like-minded producers are expected to announce the extension of an output cut scheme expiring in March. Baseline expectations envision prolonging the effort for nine months.

That much may be in the price already, meaning it is unlikely to be sufficient to drive prices meaningfully higher. Setting out output caps for Nigeria and Libya – OPEC members previously exempt from the accord – and nailing down an exit strategy to avoid a sudden output spike may be of greater interest.

Early comments from the sidelines of the meeting suggest there is still some disagreement among the participants, although key countries including Saudi Arabia and Russia appear to back a nine-month extension. Still, the absence of an exit plan or firm agreement on Nigeria and Libya may send prices lower.

Gold prices continue to take direction cues from Fed rate hike speculation. This time around, the spotlight is on the PCE inflation gauge – policymakers’ favorite price growth yardstick – as well as the fate of Republican-led tax cut plan in the US Senate.

Markets continue to expect tax cuts to boost inflation, forcing the Fed into a steeper tightening cycle in 2018. If the Senate manages to pass their version of reform, opening the door for reconciliation with a House of Representatives version, gold may decline. An expected PCE uptick may help drive prices downward.

What are the drivers of long-term crude oil price trends? See our guide here !

GOLD TECHNICAL ANALYSIS – Gold prices were rejected from familiar resistance marked by the 38.2% Fibonacci retracement at 1297.74 yet again. From here, a daily close below channel floor support at 1279.17 opens the door for a test of the 1266.44-69.10 area (October 6 low, 38.2% Fib expansion). Alternatively, a breach of 1297.74 exposes the 1306.04-9.15 zone (October 16 high, 50% level).

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices edged lower as expected after producing a bearish Dark Cloud Cover candlestick pattern coupled with negative RSI divergence. A daily close below the 23.6% Fibonacci retracement at 56.70 exposes the 38.2% level at 55.25. Alternatively, a move back above support-turned-resistance at 57.92 targets the 23.6% Fib expansion at 59.10.