Oil prices remain constructiveUSD

Oil prices traded sideways once again overnight. A much lower US dollar was offset by OPEC’s monthly report which lowered oil demand and a surprise spike in US API Crude Inventories above 5 million barrels. The OPEC report’s impact was negated as it stated that some members would have output challenges over the next few months. Brent crude was unchanged at USD 83.30 overnight, with WTI almost unchanged at USD 80.55 a barrel.

Physical market fundamentals remain positive for oil prices and natural gas prices have resumed their climb in Asia today after a few sideways sessions. That sees Brent crude and WTI adding 0.50% to USD 83.70 and USD 80.95 a barrel in Asian trading.

Speculative long positioning in the futures markets remains heavy leaving open still, the possibility of a sharp sell-off of 5 dollars to 8 dollars a barrel at some stage this week. As I have stated previously though, given the state of play in the physical market, a speculative long culling will be a dip to buy and is likely to be very short-lived in duration. A sharp rise in official US Crude Inventories tonight could provide that catalyst.

Brent crude has resistance at USD 85.00 and USD 87.00 a barrel, with support at USD 82.00 a barrel. WTI has resistance at USD 82.00, with support at USD 78.70 a barrel. The relative strength indexes (RSIs) remain in overbought territory. The higher into overbought territory they go, the deeper the short-term correction lower will be.

Gold stages an impressive rally

Gold prices staged an impressive overnight rally as the US dollar staged a sharp reversal lower as long-dated US yields sank. Despite the noise that inflationary pressures are supporting gold, or haven buying, nothing in that space has materially changed over the past couple of weeks, so to suddenly suggest it miraculously occurred overnight is stretching credibility. At the end of the day, gold is moving inversely to the US Dollar and that is the end of the story. If you live in Turkey or Venezuela, you may want to buy some gold for that reason, otherwise gold remains a hedge for hyper-inflation, not rising inflation.

Gold spiked 1.87% higher overnight, climbing USD 33.00 to USD 1793.00 an ounce as the intra-day momentum attracted fast money looking for a quick buck in price action reminiscent of the crypto space or meme stocks. In Asia, some profit-taking from short-term traders has pushed it back to USD 1790.00 an ounce as, you guessed it, the US dollar rises modestly.

Having broken through USD 1780.00 overnight, gold has interim support at that level followed by USD 1750.00 and USD 1740.00 an ounce. Longer-term support is at USD 1720.00 an ounce. Resistance is between USD 1795.00 and USD 1800.00 region which contains the 100 and 200-day moving averages (DMAs) and is a formidable barrier. That is followed by USD 1810.00 and USD 1835.00 an ounce.

If the US dollar, as I expect, resumes its rally, the overnight price gains will vanish into thin air as the fast-money players exit as rapidly as they arrive. Should the US dollar strength persist though, further gains cannot be ruled out.