OPEC+ dodges a bullet
OPEC+ has staged an escape act that David Copperfield would be proud of, as the Pfizer BioNTech Covid-19 announcement triggered a massive rally in oil. The fast money immediately priced in a return to 2019 global normality tomorrow, as Brent crude and WTI both traded 10% higher intra-day, before easing somewhat into the close.
Brent crude finished the session 5.95% higher at USD42.00 a barrel. WTI ended the day 6.50% higher at USD39.75 a barrel. That leaves both contracts at the upper end of their two-month ranges. Notably, Brent crude failed again at two-month resistance in the USD43.50 area. WTI did the same, failing ahead of two-month resistance in the USD41.50 area. Both contracts are 20 cents higher this morning, with Asian traders likely content to let the Northern hemisphere take the price lead.
The reality is that air travel is not going to miraculously return to anything remotely familiar in the next six months, vaccine or not. Just taking thousands of aircraft out of storage, restoring them to flying condition and recertifying all the aircrew will be an exercise of a biblical scale. The US, and Europe in particular, are grappling with Covid-19 second waves that will almost certainly subdue consumption.
The sentiment, though, cares not for the technical niceties of real life. And sentiment and momentum now, are positive. If other vaccines candidates emerge in the next month, a longer-term bottom in oil prices may well be put in place. Brent crude has formidable resistance still at USD46.50 a barrel, as does WTI at USD44.00 a barrel. Although oil is probably a buy on dips this week on sentiment and momentum alone, it still has a lot of wood to chop above to convince markets that they are not being led to water, instead of black gold again.
I don’t have much else to say apart from that. Readers may recall that I warned yesterday that gold could be subject to emotional price pullbacks this week, even as the markets turned strongly bullish. I was not expecting gold to fall USD90 an ounce, or 4.65% to USD1862.00 an ounce.
There were probably two factors at work behind the carnage. Firstly, like myself, many investors had probably turned bullish on the strong technical picture that showed a medium-term upside breakout, supported by rising equity markets. In a nutshell, the market was long and very wrong when the vaccine headlines hit.
Secondly, the steepening of the US yield curve, as markets priced out any fiscal easing in the US altogether, fatally undermined a significant support factor for gold; the yield differential. That pushed the US dollar higher and accelerated the panic selling as markets fell aggressively. The story was much the same on gold’s little sister, silver, which fell 6.0% overnight.
Fellow haven, Bitcoin, hardly budged overnight. That suggests to me that falls in precious metals were driven by positioning, liquidity and yield differentials, and had nothing to do with haven unwinding. Whether Bitcoin is now overbought, or gold is oversold, is something I will not hazard a guess on.
Gold has rallied by 1.0% this morning to USD1880.00 an ounce, but the bounce looks corrective, driven by overnight profit-taking. The RSI for gold remains in overbought territory, suggesting that gold will struggle to maintain gains in the near-term. Gold has broken its 100-DMA at USD1901.50 an ounce, which becomes notional resistance. Critical support lies at USD1840.00 an ounce, followed by USD1790.00 an ounce.