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Crude Oil Prices at Risk on OPEC, Russia Spat. US Jobs Data Due

Crude Oil Prices at Risk on OPEC, Russia Spat. US Jobs Data Due

2020-03-06 06:00:00
Ilya Spivak, Head Strategist, APAC

CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices down, gold up as coronavirus fears batter markets
  • Russia due to respond to OPEC ultimatum on extending output cuts
  • Upbeat US jobs data unlikely to meaningfully improve market mood

Benchmark commodity prices have been anchored to broad-based market sentiment trends. Cycle-sensitive crude oil prices fell alongside stocks amid another round of liquidation driven by worries about the economic downdraft from the coronavirus outbreak. Gold prices rose as capital poured into the perceived safety of government debt, sinking yields and boosting the appeal of non-interest-bearing alternatives.

Gold, crude oil prices diverge amid coronavirus outbreak fears

Chart created with TradingView

More of the same looks likely ahead. Futures tracking top European and US equity indexes are pointing convincingly lower in late Asia Pacific trade, arguing for a risk-off tilt in the final hours of the trading week. Traders will probably keep a close eye on the on-going standoff between OPEC and Russia as well as February’s US employment data.

CRUDE OIL AT RISK AS OPEC, RUSSIA CLASH OVER OUTPUT CUTS

The cartel has been trying to strong-arm Moscow into another 1.5 million barrel/day output cut, warning that its members may abandon any previously agreed production caps if it does not. Russian oil minister Alexander Novak is due in Vienna with Kremlin’s response to the ultimatum. Crude oil prices may face heavy selling pressure if the dispute appears to shatter the Saudi- and Russia-led “OPEC+” alliance.

UPBEAT US JOBS REPORT UNLIKELY TO CALM JITTERY MARKETS

Meanwhile, the US Bureau of Labor Statistics is expected to report a 175k increase in nonfarm payrolls in February. That would mark a slight slowdown from January’s 225k rise but fall broadly in line with the medium-term trend average. US economic data has increasingly outperformed relative to baseline forecasts since mid-January, which may foreshadow another upside surprise.

Sentiment may get a bit of a lift if the US labor market appears stronger than expected, but follow-through seems unlikely. Traders may reason that any sign of strength is too lagging of an indicator to be reasonably extrapolated into the future as uncertainty about the coronavirus’ full economic impact lingers. On the other hand, a disappointment may bolster the already dominant anti-risk narrative.

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GOLD TECHNICAL ANALYSIS

Gold prices rebounded having probed near resistance-turned-support in the 1535.03-57.10 area, moving toward a retest of February’s high at 1689.30. Breaking above that on a daily closing basis may expose the 61.8 Fibonacci expansion at 1713.59. Alternatively, slipping back below the 38.2% level at 1656.13 initially targets the 1611.34-20.58 zone (January 8 high, 23.6% Fib).

Gold price chart - daily

Gold price chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are pulling back after a bounce to retest support-turned-resistance in the 48.66-49.31 area. Sellers now look poised to challenge the September 2016 bottom in the 42.05-43.00 zone once again. Breaking below that on a daily closing basis targets may set the stage for a test of the August 2016 low at 39.13 next. Neutralizing near-term selling pressure seems to need a close above falling channel resistance (50.45).

Crude oil price chart - daily

Crude oil price chart created using TradingView

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--- 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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