Oil falls on US crude inventory build

Overnight, oil prices retreated, although only modestly given the scale of the rally this week. US Crude Inventories unexpectedly spiked to 4.28 million barrels, although distillate and gasoline inventories plunged by a similar magnitude. In times past, oil markets would have ignored the headline number, justifying that by noting the decline in distillates and gasoline.

The fact that they didn’t overnight suggests that speculative positioning remains heavily long and likely at relatively high prices. That implies that oil remains vulnerable to more downside pressures in the short-term, with both Brent and WTI moving lower in Asia today as well.

Overnight, Brent crude fell by 0.95% to USD43.30 a barrel and has retreated another 1.30% in Asia to USD42.75 a barrel. WTI fell by 1.15% overnight to USD40.90 a barrel. It has dropped another 1.60% to USD40.25 a barrel in Asia today.

The nervous price action leaves Brent crude just above support at its 100-day moving average (DMA) at USD42.70 a barrel. Failure opens further losses below USD42.00 a barrel. WTI has broken through its 100-DMA at USD40.35 with the next technical support at USD39.50 a barrel.

Both contracts have now given back around half of their week’s gains. The price action in Asia today suggests the market remains nervously long with the downside definitely the path of least resistance intra-day.

Gold continues to consolidate at the bottom of its range

Gold rose 0.62% to USD1877.00 an ounce overnight. It remains trapped in a USD1855.00 to USD1885.00 an ounce range, as the market continues to process the shock collapse on Monday. In line with the corrections seen in other asset classes, gold has traced out a series of higher lows over the past few days, with buyers tentatively returning to the market.

Gold seems likely to retest resistance between USD1885.00 and USD1890.00 an ounce should the market’s post-vaccine-highs evolve into a nagging hangover. That does not mean the worst is over for gold by any means. Gold has yet to demonstrate that it can hold its own when stock markets get sold heavily. In fact, the opposite remains apparent. A pre-weekend rush for the exit door by European and US equity markets could quickly turn gold’s frail recovery into another rout.

Gold has support between USD1845.00 and USD1850.00 an ounce, but a failure opens further losses to USD1800.00 an ounce. Until the bigger picture clarifies, it may be best to avoid getting involved at these price levels.