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Crude Oil Prices May Stall After Largest Daily Gain in 2 Months

Crude Oil Prices May Stall After Largest Daily Gain in 2 Months

Ilya Spivak, Head Strategist, APAC

CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices rise most in 2 months on varying signs of ebbing supply
  • Gold prices snap winning streak as FOMC minutes point to higher rates
  • US Dollar recovery might broadly pressure global raw materials prices

Crude oil prices enjoyed a spirited advance yesterday, with a series of supportive catalysts offering on-going support for what became the largest one-day gain in two months.

First, Chinese energy giant Sinopec said it will not import any more oil from the US or Iran in the second half of the year, predicting 3-5 percent drop in crude processing. Then, a member of International Group, the insurer covering close to 90 percent of the world’s tankers, said US sanctions have “severely compromised” its dealings with Iran. Taken together, both headlines spoke to diminished global supply prospects.

The final piece of the puzzle came by way of EIA inventory flow data. It showed that US stockpiles shed a hefty 5.84 million barrels last week, a far larger drawdown than the 1.86 million drain expected by economists ahead of the data release. The outcome proved to be market-moving despite being telegraphed in analogous API data published Tuesday.

Gold prices were little-changed. The yellow metal attempted to extend the rally traced out over the preceding three sessions intraday but momentum faded before the release of minutes from Augusts’ FOMC meeting. Investors’ caution was rewarded as the document set the stage for continued interest rate hikes, as expected. The metal finished the session with a narrow loss.

GOLD, CRUDE OIL MAY WEAKEN ON US DOLLAR REBOUND

Looking ahead, US PMI data amounts to the only eye-catching bit of scheduled event risk. That seems unlikely to be market-moving however amid anticipation of Friday’s Jackson Hole symposium speech from Fed Chair Jerome Powell.

With that in mind, a rebound in the US Dollar may prove defining for commodities prices. The greenback tellingly rose alongside Treasury bonds while most regional bourses fell in Asia Pacific trade, hinting at the re-emergence of risk aversion as the catalyst. Fed worries about trade wars and emerging markets turmoil along with political instability in Australia seemed to be at work. Three ministers quit the government of embattled Prime Minister Malcolm Turnbull, setting the stage for another confidence vote.

Raw materials prices may turn lower if the greenback continues to recover. A downshift in US stock index futures before the opening bell on Wall Street suggests this as the path of least resistance. Pre-positioning for the aforementioned Powell speech may help. Traders may want to dial back short term anti-USD exposure to minimize fallout in the event that his tone remains convincingly hawkish, headwinds notwithstanding.

See our guide to learn about the long-term forces driving crude oil prices!

GOLD TECHNICAL ANALYSIS

A recovery in gold prices stopped squarely at resistance marking the down move since mid-June. A move lower from here sees initial support at 1160.37, the August 16 low, with a daily close below that exposing the 38.2% Fibonacci expansion at 1127.93. Alternatively, a push above support-turned-resistance at 1204.59 targets the 1236.66-40.86 area.

Crude Oil Prices May Stall After Largest Daily Gain in 2 Months

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices launched higher to retest support-turned-resistance guiding the uptrend started in February. A daily close above its upper layer at 68.81 opens the door for a challenge of the 69.89-70.41 area. Alternatively, a turn below support in the 63.96-64.26 zone sees the next downside barrier at 61.84.

Crude Oil Prices May Stall After Largest Daily Gain in 2 Months

COMMODITY TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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