Oil slides, gold unchanged

Oil gets an Omicron/Manchin bath

Omicron nerves are getting more frazzled by the day, especially in Europe and the UK where the spectre of tighter restrictions loom. Additionally, with Senator Manchin torpedoing the Build Back Better bill, US growth will likely take a small haircut next year. Taken in totality, oil markets are pricing in lower consumption into 2022 and Friday’s sell-off has continued with vigour in Asia this morning.

Brent crude fell by 2.20% on Friday, tumbling another 2.65% in Asia today to USD 71.00 a barrel. WTI has fared even worse, falling 2.25% on Friday and then dropping another 3.65% to USD 68.10 a barrel in the Asia session. Ominously, both contracts closed below their respective 200-DMAs on Friday.

Although the short-term outlook for oil is being sunk by negative virus and US legislative sentiment, we should not discount OPEC+ from the equation. OPEC+ left their last meeting open precisely to manage this type of situation. If Brent crude continues to head south from here, I wouldn’t discount OPEC+ stepping in to roll back their recent production increases. Given that compliance is over 100%, this would process would be easy to achieve right now.

Brent crude has resistance at USD 72.50 and then the 200-DMA at USD 73.20 a barrel. Support notionally appears at USD 70.20 a barrel followed by USD 68.00. WTI has resistance at USD 69.40 and then the 200-DMA at USD 70.50 a barrel. Support lies at USD 66.00 a barrel.

Gold lacks momentum either way

Gold spiked higher on Friday, touching USD 1814.00 an ounce intraday, before falling back to an unchanged level at USD 1798.00 an ounce. In Asia, a slightly softer US dollar and lower US 10-years have seen gold record a modest 0.23% gain to USD 1802.20 an ounce.

Gold‘s attempts to stage a meaningful recovery do not distil confidence, with traders cutting long positions at the very first sign of trouble intra-day. Gold lacks the momentum, one way or another, to sustain a directional move up or down. In all likelihood, gold will remain a forgotten asset class and face another week of choppy range trading.

Gold has formed a rough double top around the USD 1815.00 region which will present a formidable barrier at USD 1840.00. Support lies at USD 1790.00, followed by USD 1780.00 an ounce. USD 1790.00 to USD 1815.00 could well be the range for the week.