Crude Oil Prices Soar as Non-OPEC Producers Join Output Cut

2016-12-12 00:20:00

Talking Points:

Crude oil prices soar as non-OPEC producers join output cut
Gold prices drop ahead FOMC monetary policy announcement
EIA report may cap oil rally, gold weakness may be short-lived

Crude oil prices soared at the start of the trading week after non-OPEC producers struck a deal to join their OPEC counterparts in a supply cut scheme at a meeting in Vienna over the weekend. Taken together, suppliers outside of the cartel said they would lower output by 558k barrels per day. Russia agreed to a 300k b/d reduction and Mexico – which previously bristled at the deal – said it would cut by 100k b/d.

Momentum may be capped if the EIA monthly productivity report due later in the day reveals a strong pickup in US output. The agency said supply will increase next year in a report released last week. Signs of a strong recovery may stoke speculation that OPEC-led efforts to curb a global glut and boost prices will be offset. Besides the US, major producers including Canada, Brazil and Norway are not planning cut-backs.

Gold prices pushed lower as the US Dollar gained alongside Treasury bond yields, undermining demand for anti-fiat and non-interest-bearing assets. The move probably reflected pre-positioning ahead of this week’s FOMC meeting. Chair Janet Yellen and company are widely expected to issue another interest rate hike. Upbeat consumer confidence data may have also helped. The University of Michigan said its sentiment gauge rose to the highest level in almost two years in December. Follow-through may prove limited however.

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GOLD TECHNICAL ANALYSIS – Gold prices look vulnerable to deeper losses after prices closed below support at 1161.52, the 14% Fibonacci expansion. The next downside barrier is marked by the 23.6% level at 1145.30, with a further push below that targeting the 38.2% Fib at 1118.98. Alternatively, a move back above 1161.52 exposes support-turned-resistance at 1180.17.

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices gapped sharply higher to test above the $54/bbl figure. A daily close above the 38.2% Fibonacci expansion at 53.49 exposes the 50% level at 54.70. Alternatively, a move below the 51.64-52.00 area (double top, 23.6% Fib) targets the December 8 low at 49.60.