Oil markets watch from the side-lines

Despite the noise elsewhere, oil markets were content to sit the volatility and inflation nerves out last night. Both Brent crude and WTI finishing almost unchanged from Friday USD68.25 and USD64.90 a barrel, respectively, despite respectable intraday ranges. With both contracts bouncing around in near two-dollar ranges, it seems that energy markets are still suffering a Non-Farm Payroll hangover and are struggling for their next directional move.

In Asia, oil has retreated as base metal and platinum group metal prices fall, with the equity sell-off fraying global recovery nerves. Both contracts have fallen by 40 cents to USD67.85 and USD64.50 a barrel, respectively. A continuing lack of upward momentum will increase the chances of an abrupt downside correction as the week goes on.

Brent crude has resistance at USD70.00 and then USD71.50 a barrel. It is flirting with support at USD68.00. That is followed by USD67.00 and USD66.00 a barrel. WTI remains dead centre of its near two-month rising channel bounded by USD62.50 and USD67.00 a barrel. Only a failure of USD62.50 would disrupt the longer-term bullish picture. Interim support and resistance lie at USD64.00 and USD66.00 a barrel, respectively.

Gold is resilient

Gold finished almost unchanged overnight, climbing 0.25% to USD1835.50 an ounce, where it remains in Asia. Gold once again probed resistance near USD1850.00 an ounce, also its 200-DMA, only to be repulsed once again. The rise in US yields sapped the upward momentum without turning the gold rally into a reversal.

I note that US 10-year yields rose only slightly overnight, with the 30-year firming more in comparison. That means that gold’s negative correlation to rising 10-year yields has yet to be still tested. The double failure ahead of USD1850.00 an ounce has increased the likelihood of a correction lower, especially if the 10-year yields move higher tonight.

A failure of USD1830.00 could see gold retrace to USD1817.00 an ounce and possibly back to USD1800.00 an ounce. Only an outright failure of USD1800.00 an ounce, though, will imply the rally has run its course. In the immediate term, the USD1850.00 area presents a formidable barrier to further gains. Once cleared, resistance appears at USD1875.00 an ounce.