Oil continues to rise on consumption hopes

Oil shrugged off the profit-taking seen in other asset classes on Friday and continued to consolidate at the top of its November ranges. Hopes that vaccines will return the world to a semblance of normality in 2021 continue to drive consumption forecasts higher, supporting oil which has also seen a rise in speculative long futures positioning. Brent crude rose 2.05% to USD45.10 barrel, and WTI rose 1.70% to USD42.40 a barrel on Friday.

After initially dropping following the postponement of the Singapore and Hong Kong travel bubble, oil has quickly recouped those losses and is now in positive territory. In the greater scheme of things, the Singapore/Hong Kong bubble was never going to change the picture for international travel materially, only vaccines can do that, and they now appear closer to reality. Oil’s next major risk point will be the full OPEC+ meeting next Monday. Although I am not expecting OPEC+ to change their intentions to raise production in 2021 now that Brent crude has risen to USD45.00 a barrel, there is still the possibility they may choose to “help” things along a bit and surprise markets with a reduced production schedule.

In Asia, both Brent crude and WTI have firmed slightly after weathering some initial selling. Brent crude has risen 10 cents to USD45.20 a barrel, but face longer-term resistance at USD46.50 a barrel, while initial support lies at USD44.00 a barrel. WTI has risen 10 cents to USD42.50 a barrel but faces formidable monthly resistance ahead of USD44.00 a barrel. Initial support lies at USD41.50 a barrel, followed by the 100-day moving average (DMA) at USD40.50 a barrel.


Gold continues to range

A slightly weaker US dollar on Friday was modestly supportive of gold, which rose 0.25% to USD1871.00 an ounce. In aimless trading today, gold has risen another 0.15% to USD1873.50 an ounce.

In the bigger picture, gold remains confined to a USD1850.00 to USD1900.00 an ounce range. Notably, gold fell through its ascending multi-month trendline support last week at USD1870.00 an ounce. It attempted but failed, to reclaim that support over the past two sessions, a bearish technical development.

The trendline now forms resistance, and today is at USD1876.50 an ounce. The 50-DMA follows that at USD1898.00 an ounce. The technical picture still suggests the risks for gold are skewed to the downside. If we see emergency vaccine approval in the next two weeks, those risks could magnify. A daily close below the USD1845.00/USD1850.00 an ounce support zone will signal deeper losses, initially targeting the 200-DMA at USD1795.00 an ounce today.

Although currency debasement in 2021, and the possibility of inflation, remote as it is, are supportive long-term factors for higher gold prices, there remains a real possibility we will see a material washout of long positioning first.