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Crude Oil Prices May Be Topping Despite Surge on Florence Fears

Crude Oil Prices May Be Topping Despite Surge on Florence Fears

Ilya Spivak, Head Strategist, APAC

CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices surge on worries about hurricane Florence, API data
  • Technical positioning warns that a major oil price top may be forming
  • Gold prices eyeing US PPI data for signs of faster wage growth impact

Crude oil prices soared – scoring the largest daily gain in nearly eight months – amid worries that hurricane Florence will disrupt energy production infrastructure. API data showing inventories shed 8.64 million barrels, the most since July, amplified upward pressure. So too did an EIA report lowering US output estimates for this and next year.

Gold prices likewise rose as the move in crude prices echoed across the raw materials space as well as bled into equities and currencies. Perhaps most notably, energy-linked shares stood out as one of the key drivers propelling US shares upward, chipping away at some of the haven-based support holding up the US Dollar. That pushed the greenback down off intraday highs, helping to lift anti-fiat precious metals.

OFFICIAL OIL INVENTORY FLOW DATA, OPEC REPORT IN FOCUS

Looking ahead, official DOE inventory flow data is in focus for crude oil prices. An outcome dwarfing the projected 1.58 million barrel drawdown to print closer to the API estimate may offer another upward nudge. The monthly report from OPEC may cap upside momentum however if it talks up compliance with the recent increase in output quotas for the cartel and its top-producing allies (such as Russia).

Meanwhile, US PPI may help set the stage for the much-anticipated CPI report due later in the week. Wholesale inflation is expected to edge lower but last week’s US jobs report revealed a potent jump in wage growth, opening the door for an upside surprise. Markets may nudge up Fed rate hike bets if it materializes, boosting the US Dollar and weighing on gold.

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

GOLD TECHNICAL ANALYSIS

Gold prices are mired in digestion mode but overall positioning suggests downtrend resumption as the path of least resistance. A daily close below theAugust 24 lowat 1183.28 targets the swing bottom at 1160.37 next. Alternatively, a reversal back above the August 28 high at 1214.30 paves the way for a retest of former support in the 1235.24-41.64 area.

Crude Oil Prices May Be Topping Despite Surge on Florence Fears

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices rose to retest resistance in the 70.15-41. A daily close above it would open the door for a challenge of the chart inflection point at 72.88. Support continues to be defined by the upward-sloping barrier guiding the uptrend from early September, now in the 65.35-67.24 zone.

Crude Oil Prices May Be Topping Despite Surge on Florence Fears

Turning to the weekly chart, a Head and Shoulders top may be starting to take shape. A conclusive break below the pattern’s neckline near the $64/bbl figure would serve as confirmation, opening the door for a measured move to test below the $53/bbl mark.

Crude oil price chart - weekly

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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