CRUDE OIL & GOLD TALKING POINTS:
- Crude oil prices may rise if OPEC+ officials strike output cap deal
- Soft demand may mean that any short-term gains are quick to fizzle
- Gold price bounce still going, lasting follow-through seems suspect
Crude oil prices languished in digestion mode as all eyes turn to ongoing OPEC+ negotiations about the fate of the top producer group’s output cap regime. As it stands, the oil cartel and its allies – notably Russia – are set to phase out production limits at the start of the new year.
As it stands, the setup would bring an additional 1.9 million barrels per day to the market starting January 1. Some of the participating countries wanted to delay the rise by several months in a bid to buoy prices that have been weighed down by soft demand amid Covid-19 disruption.
That much is probably not in the cards after some OPEC+ members balked at the proposal, but reports circulating across the wires suggest that a middle-ground option phasing in output gains be in scope. The group will meet today after two days of delay, with traders watching closely for signs of progress.
The appearance of a breakthrough – even if one is not formally announced just yet – may help lift crude oil prices. Follow-through on any such move may be suspect however: restricting output may not work to keep prices elevated if weak demand keeps inventories well-stocked.
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CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices are consolidating gains after setting a nine-month high above the $46/bbl figure. A test of resistance clustered near the $50/bbl mark looks like the path of least resistance, with a daily close above that seeing initial resistance at 54.45 (Feb 20 high). Alternatively, reversing back below 42.40 may bring the 34.64-36.15 support shelf back into play.
Crude oil price chart created using TradingView
GOLD REBOUND MAY SLOW AS RISK-ON MOMENTUM EBBS, FED OUTLOOK SHIFTS
Meanwhile, gold prices are on pace to extend a spirited recovery for a third consecutive day. Buoyant risk appetite has weighed on the anti-risk US Dollar, offering a de-facto lift to the anti-fiat yellow metal. Bellwether S&P 500 futures are trading flat however, signaling sentiment neutrality and hinting at a pause.
The recently chipper mood has also encouraged a shift away from dovish extremes on the priced-in Fed monetary policy outlook. The yield curve has steepened alongside the futures-implied 2021 path for the Fed Funds rate. The return premium on USD-denominated debt has widened. All this bodes ill for gold.
GOLD TECHNICAL ANALYSIS
Gold prices have rebounded and now look to retest support-turned-resistance 1848.66-63.27 area. A break above that on a daily closing basis eyes the 1911.44-28.82 zone next. Support is in the 1747.74-65.30 zone, with a reversal back below that setting the stage for a test below the $1700/oz figure.
Gold price chart created using TradingView
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— Written by Ilya Spivak, Head APAC Strategist for DailyFX
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