Crude Oil and Gold Talking Points:
- Crude oil prices edged up again
- The prospect that supply could be cut further if coronavirus hits Chinese demand has provided some support
- Gold prices were lower as the US Dollar held up
Crude oil prices looked set for a second day of rises Wednesday. US stock markets bounced back in the previous session although the spread of coronavirus is clearly keeping risk appetite, and therefore oil markets, in check.
The Organization of Petroleum Exporting Countries (OPEC) wants to extend current production cuts until at least June, from March, and may deepen them if the virus results in weaker energy demand from China, CNBC reported citing OPEC sources.
Tuesday’s news of a surprise 4.3 million barrel drop in US crude stockpiles last week, when the market was looking for a modest rise, also helped support prices. Further weekly inventory numbers are due later Wednesday, this time from the US Department of Energy.
| Change in | Longs | Shorts | OI |
| Daily | 0% | -7% | -2% |
| Weekly | -7% | 1% | -5% |
Gold Market Looks To 2020’s First Fed Meet
Gold prices were lower on Wednesday in Asia but moves were small as the market looked to the first monetary policy decision of the US Federal Reserve. That will hit the wires early on Thursday morning for regional markets.
The central bank is expected to leave its settings alone this month, with markets on obvious alert for whether the coronavirus outbreak may incline the Fed to keep its policy accommodative for longer. A spike in new cases of the virus in China sent Hong Kong stocks lower as investors there returned from their Chinese New Year break, and kept gold prices underpinned.
However, the US Dollar held close to two-month highs made in the previous session, making dollar-denominated gold less attractive into the Fed call.
| Change in | Longs | Shorts | OI |
| Daily | -3% | -2% | -3% |
| Weekly | 9% | -18% | -5% |
Crude Oil Technical Analysis
Prices have been falling consistently on the daily chart since January 6. Back then crude attracted a substantial risk premium in the wake of lethal US airstrikes on a key Iranian general in Baghdad. However that premium has been withdrawn and then some, taking prices back down toward 2019 lows.
They seem to have bounced just above that mark for the moment but the coronavirus story will retain its power to send them lower. The near-term bull target of $54.74/barrel will beckon as long as current support holds. It was the intraday low of November 20 and November 29 and is currently only 70 cents above the market.
A durable close above that level would be a sign that the bulls were building a platform for further gains, but the hiatus on the way lower will look precarious without it.
Gold Technical Analysis
Gold prices have seen another upside attempt peter out before getting back to early January’s near-seven-year highs. The market looks to be returning to its former range although that return has yet to be confirmed by a daily close even if one looks likely on Wednesday.
Even if trade returns to that band it seems unlikely that the range will break to the downside without a general revival in risk appetite.
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- See our guide to learn about the long-term forces driving crude oil prices
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--- Written by David Cottle, DailyFX Research
Follow David on Twitter @DavidCottleFX or use the Comments section below to get in touch!
