Oil rallies impressively
Oil powered higher overnight, as global recovery hopes and the slower than hoped return of production and refining in Texas was all the excuse traders needed to reload long positioning. Brent crude leapt 5.0% higher to USD65.80 while WTI also outperformed, rallying 5.50% to USD62.20 a barrel.
Notably, neither contract has seen any sign of profit-taking this morning, with Brent crude rising 0.65% to USD66.25 and WTI climbing another 0.55% to USD62.50 a barrel. Markets are showing no nerves about the March 4th OPEC+ meeting, and with futures curves in a very bullish strong backwardation, the price action overnight and today sends a strong signal that oil will be highly sought after on dips.
Morgan Stanley joined Goldman Sachs in raising its oil price target overnight, and Iran’s threat to enrich uranium to 60% purity reduces the odds that its production will return to world markets in volume anytime soon.
Brent crude has now broken through resistance at USD66.00 and directly targets the January 2020 highs at USD71.20 a barrel. Support appears at USD66.00 initially, followed by USD62.20 a barrel. WTI has cleared resistance at USD62.00 a barrel, which becomes intra-day support as the Texas deep freeze recovery drags on. WTI’s next target is the January 2020 highs around USD65.60 a barrel, and only the failure of USD59.00 a barrel calls the rally into doubt.
The RSI technical indicators on both contracts have moved back into overbought territory today, but not markedly so. Given that developments in the physical market are driving the rally, oil will continue to find a wall of buyers awaiting any dips in prices.
Gold finally finds some friends
Perhaps the most unusual move overnight was the powerful 1.50% rally in gold prices. Having wilted under higher US yields and ignoring a weaker US dollar last week, higher US yields and a weaker dollar could not stop gold climbing USD26 to USD1810.00 an ounce.
If nothing else, the rally in gold overnight highlights the inflation concerns globally target-fixating financial markets this week. Gold has now traced out a rough double-bottom near the USD1760.00 an ounce Fibonacci region. That highlights its importance as a long-term critical support zone, and failure now almost certainly condemns gold to a move to the low USD1600’s an ounce.
Gold has moved two dollars higher to USD1813.00 an ounce today, with Asia unwilling to join the overnight rally ahead of the Powell testimony this evening. Gold’s rally, coming as the market’s completely ignored the identical factors that sent it lower last week, is a warning sign against unfettered bullishness and recovery hopes.
Gold has initial resistance at USD1830.00 an ounce, but far more formidable resistance remains just above in the shape of its 50,100 and 200-day moving averages. All three are clustered between USD1850.50 and USD1860 an ounce. The 50-DMA crossed below the 200-DMA last week, and the 100-DMA looks set to do the same in the next few days if prices trade sideways from here. Gold is by no means out of the woods yet. The nature of the rally overnight, and the ominous moves by the technical, signal caution is warranted still. It could yet turn into a sucker’s rally.