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Oil prices leap higher after Powell testimony

Oil prices rocketed higher overnight as the Powell testimony removed the threat of early rate hikes, for now, allowing the fundamentals of constrained OPEC+ production, and an omi-gone variant recovery, to reassert themselves with a vengeance. Brent crude rocketed 3.25% higher to USD 83.60 a barrel, while WTI leapt 3.65% higher to USD 81.25 a barrel. Both contracts have firmed slightly in Asia to USD 83.80 and USD 81.45 a barrel respectively.

This sets the scene for more gains in the week ahead, having traded sideways the past few sessions as equity markets have corrected lower. It seems that even the threat of faster tightening by the Fed over the past few days couldn’t undermine oil prices, and if US inflation is lower than 6.50% tonight, after the Powell comments overnight, then oil prices should continue rising. Assuming China doesn’t suffer a sharp slowdown, that omicron actually becomes omi-gone, and with OPEC+’s ability to raise production clearly limited, I see no reason why Brent crude cannot move towards 100.00 dollars in Q1, possibly sooner. Having said that, I acknowledge there are plenty of variable outcomes in the previous sentence, the biggest threat being omicron in China, India, and Indonesia.

In the nearer term, Brent crude has support at USD 83.00 and USD 81.00 a barrel, with resistance at USD 86.00 a barrel.  WTI has support at USD 80.50 and USD 78.50 a barrel, with resistance at USD 82.00 and USD 85.00 a barrel. One note of caution is that both Relative Strength Indexes (RSIs) are moving towards overbought. That could limit oil’s gains for the rest of the week and could signal a short-term correction but won’t change the underlying bullish outlook.

Gold rallies in Asia

Gold saw the fast-money buyers return overnight as the Fed tightening trade was stopped in its tracks by Jerome Powell’s testimony. That pushed gold 1.10% higher to USD 1821.50 an ounce. As ever, I believe the rally should be taken with a huge grain of salt, as past price action suggests gold will fall just as quickly at the first sign of stalling momentum. A higher US inflation print could create that situation tonight.

Gold has edged lower to USD 1819.00 an ounce in Asia and has resistance just above at USD 1823.50, and USD 1830.00 an ounce. Support lies at USD 1800.00, followed by USD 1785.00 and USD 1780.00 an ounce.