Oil has a pre-OPEC+ correction

Oil prices eased overnight as pandemic concerns, and their effect on global growth, and overbought technical indicators, saw markets lighten long positions into this week’s OPEC+ meeting. Brent crude fell by 2.0% to USD 74.60 a barrel, and WTI fell by 1.65% to USD 72.75 a barrel. With Asia’s pandemic nervousness increasing, oil prices have continued lower today. Brent crude and WTI have shed another 30 cents to USD 74.30 and USD 72.45 a barrel.

The previously overnight relative strength indexes (RSIs) on both contracts have now moved solidly back into neutral territory. But the fall of the Dow Jones overnight and the delta-variant negative sentiment sweeping Europe and Asia suggests that oil could correct lower still in the near term. This week’s deterioration will be unlikely to stay OPEC+’s hand, and I still expect them to add 500,000 bpd to the group’s production.

That may cap gains throughout the rest of the week, and soft US employment data could deepen any correction. Brent crude has support at USD 73.00 a barrel, and losses could reach as far as USD 72.00 a barrel if speculative longs rush for the exit door. WTI is sitting on support at these levels, but a deeper correction lower could extend as far as USD 70.00 a barrel.

Any washout of speculative long positions should be short in duration, as oil’s physical fundamentals remain very supportive despite short-term virus nerves. Unless OPEC+ massively opens the taps next week, however, any sell-off will be short-lived.

Gold is anchored mid-range

Gold has adopted a spectator’s attitude this week, content to watch moves in other asset classes from the side-lines. A move lower by US yields was not enough to move gold higher from its mid-range holding point as it finished the session almost unchanged at USD 1779.00 an ounce. In Asia today, the dull range-trading continued, gold easing slightly lower to USD 1775.50 an ounce.

Gold remains locked in a USD 1760.00 to USD 1800.00 an ounce range, with the 100-DMA today at USD 1793.50 an ounce, capping gains. As ever, gold’s fate will be decided by other markets, notably the US dollar’s direction. The RSI has moved back into neutral territory for now. Its failure ahead of the 100-DMA on Friday suggests this week that gold will be more vulnerable to downside risk than last.

In the bigger picture, gold needs to complete a daily close above USD 1800.00 an ounce or below USD 1760.00 an ounce to signal its next directional move. Otherwise, patience is required.