The West Texas Intermediate Crude Oil market has seen a bit of a drop, only to turn around and show signs of life again.
By doing so, it shows that there is at least some fight left in the market, despite the fact that we have been falling quite rapidly over the last couple of weeks.
I believe at this point in time the Crude Oil market is going to continue to pay close attention to the $68 region, as it is an area that has been important and significant support in the past. Rally and from here would be expected due to the fact that we are so oversold, but the real question will be asked about whether or not we can get above the $72.50 level, as it is an area that a lot of people have paid close attention to in the past, and I think ultimately, we’ve got a scenario where people will be waiting to see whether or not the previous support should then offer significant resistance in a phenomenon known as “market memory.”
Global economy
Keep in mind that the global economy looks precarious at best, and I think a lot of people are going to keep an eye on crude oil as a way to express what they believe when it comes to global growth. After all, oil is essentially the “lifeblood” of the global markets, so if there is a significant drop in economic growth, that means there will be a significant drop in crude oil. That’s essentially what’s been going on for the last couple of weeks, and now the question will be whether or not we see any follow through.
If we were to break down below the lows of the last couple of days, we could see oil really start to drop drastically. On the other hand, I think we got a situation where we are trying to find the floor, and therefore it could be choppy and noisy over the next couple of sessions.
Gold prices return to the red on early Tuesdays but remain in a familiar range near $2,500.
The US Dollar holds recovery amid US Treasury bond yields bounce and souring sentiment.
For how long can Gold buyers defend 21-day SMA at $2,499? The daily RSI stays bullish for now.
Gold price is trading on a slippery slope, battling $2,500 in Tuesday’s trading so far. Despite a minor retreat, Gold price remains within its recent range, with traders refraining from placing fresh bets on the bright metal ahead of critical US Consumer Price Index (CPI) data due on Wednesday.
Gold price is challenging the critical short-term daily support level, now at $2,499, yet again amid a modest uptick in the US Treasury bond yields and sustained US Dollar strength. The return of risk-off flows in Asia, in the face of looming concerns over a Chinese economic slowdown, keeps the haven demand for the US Dollar supported even as markets lower bets for a 50 basis points (bps) interest rate cut by the US Federal Reserve (Fed) next week.
A weak US labor market report failed to convince markets of an outsized rate cut by the world’s most powerful central bank this month amid lingering US ‘hard-landing’ fears.
Markets are currently pricing in a 29% chance of a 50 bps rate cut move, down from about 47% seen pre-NFP data release, the CME Group’s FedWatch Tool shows. About 110bps worth of cuts are priced in for the rest of the year.
Against this background, the Wall Street indices rebounded firmly but the US Treasury bond yields downtrend enabled the non-yielding Gold price to stage a brief comeback on Monday.
All eyes remain on the US inflation data due
on Wednesday. The data is likely to ramp up volatility around the US Dollar and, in turn, the Gold price. US inflation data will be key to determining Fed rate cuts beyond September.
In the meantime, Gold price will remain at the mercy of risk trends, in the absence of top-tier US data on Tuesday. Additionally, the Fed entered its ‘blackout period’ on Saturday ahead of the September 18 policy decision, leaving Gold price gyrating in a familiar range.
Gold price technical analysis: Daily chart
Nothing seems to have changed for Gold price from a short-term technical perspective, as buyers continue to stay hopeful so long as the 21-day Simple Moving Average (SMA), now at $2,499, is being defended.
The 14-day Relative Strength Index (RSI) has turned slightly lower, still remains well above the 50 level, supporting the bullish bias.
After recapturing the $2,500 level on a daily closing basis on Monday, Gold buyers now aim for the record high of $2,532, above which the $2,550 psychological level will come into play.
If Gold price faces rejection once again near the $2,530 supply zone, a correction would ensue, with a daily closing below the 21-day SMA at $2,499 needed for a sustained downside.
A breach of the latter will challenge the previous week’s low of $2,472, followed by the symmetrical triangle resistance-turned-support at $2,461.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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Last week’s price range is relatively large, from 2.075 to 2.29 and natural gas could trade within that range all this week. Nevertheless, it marks the key near-term support and resistance levels. In addition, the 2.29 price level should be used along with 2.30. The 2.30 level is more significant as it marks the breakout level of the double bottom. Also, notice that the 50% retracement is near last week’s low at 2.085.
Pullback May Test Lower Prices
Natural gas showed signs of strength last week that should be followed by further strength, unless negated. On Friday, it was able to close above the 200-Day MA, currently at 2.255, for the first time since July 1. But today, natural gas has fallen back below the 200-Day line. In addition, last week completed a measured move relative to the most recent prior upswing, which is from the rally off the first recent bottom at 1.88. The rally off that low was 22.3%, and the current advance completed a 22.4% rally from the second bottom, as of last week’s high. It adds to the potential for resistance around the 2.29/2.30 price zone.
Key Near-Term Support at 2.075
If natural gas continues to weaken but stays above last week’s low, it will continue to be poised for an upside breakout of the double bottom pattern. A drop below 2.075 may increase the time for a retracement to occur and could put at risk the potential double bottom pattern. A bullish reversal on the weekly chart was triggered last week and it indicates a likely continuation higher. That may change though if the 2.075 level is broken to the downside.
An upside bullish breakout of the double bottom will trigger on a move above 2.30. It will then need to close above it to confirm the strength of the breakout. There will then be the potential for natural gas to test resistance around the top trendline, which is near the 78.6% retracement at 2.89. Lower price targets are marked on the enclosed chart.
For a look at all of today’s economic events, check out our economic calendar.
Brent Crude oil prices are set to drop into the $60s per barrel range soon, according to one of the largest independent oil traders, Trafigura.
Brent Crude, the international benchmark, was trading at $71.63 a barrel, up by 0.65% on the day, early on Monday, as both benchmarks rebounded following a major selloff last week. Oil prices dropped to their lowest level so far this year and settled on Friday at the lowest levels since June 2023.
Ben Luckock, Global Head of Oil at Trafigura, expects Brent to drop into the $60s handle, although he warned that traders shouldn’t put all their eggs in the basket of shorts.
The price of Brent is “probably going to go into the $60s some time relatively soon,” Luckock said at the Asia Pacific Petroleum Conference (APPEC) conference in Singapore on Monday.
But, he warned that “It’s dangerous because there’s so many events out there that can ruin your day,” in remarks at a panel at the conference carried by Bloomberg.
“I wouldn’t put all your chips on the table being short,” Luckock said.
The mood in the oil market has been increasingly bearish in recent weeks amid concerns about oil demand in China, which isn’t living up to earlier expectations of leading another year of growth in global consumption.
Another major oil trader, Gunvor, also expects Brent at $70. Gunvor’s co-founder and chairman Torbjorn Tornqvist told the APPEC conference that Brent’s fair value is now $70 a barrel as supply outpaces demand.
The problem with oversupply is not the OPEC+ policy but the fact that the group doesn’t have control over the jump in non-OPEC+ supply, Tornqvist said.
The bearish forecasts from Gunvor and Trafigura came just as Morgan Stanley cut again its forecast of Brent oil price to average $75 a barrel in the last quarter of the year. The outlook downgrade was the second in just two weeks after at the end of August the Wall Street bank cut its Brent price forecast for the fourth quarter to $80 per barrel, down from $85 expected earlier.
Treasury yields trimmed early gains, weighing on the US Dollar.
Market participants await the release of the US Consumer Price Index on Wednesday.
XAU/USD battles to extend gains beyond $2,500 as bulls paused.
Spot Gold trades just around the $2,500 mark, unchanged on Monday and confined to a tight intraday range. The bright metal peaked at $2,505.18 early in the American session, as Treasury yields started the day with a positive footing. The United States (US) 10-year note peaked at 3.76% but then trimmed gains and currently stands at 3.70%.
The US Dollar remained resilient throughout the first half of the day, extending Friday’s NFP-inspired gains. The poor performance of Asian indexes added to USD strength, which receded mid-European session, as local shares managed to post gains, underpinning Wall Street ahead of the opening.
Financial markets are waiting for US inflation data, as the country will release the August Consumer Price Index (CPI) next Wednesday. The index is foreseen up by 2.6% on a yearly basis, easing from the 2.9% posted in July. The core annual reading, however, is expected to remain unchanged at 3.2%.
Following the release of the Nonfarm Payroll (NFP) report, speculative interest lifted bets the Federal Reserve (Fed) may opt for a 50 basis points (bps) rate cut when it meets next week. Cooling inflationary pressures will add to such speculation.
XAU/USD short-term technical outlook
From a technical point of view, the daily chart for XAU/USD shows bulls hold the grip but stay cautious. The pair is currently hovering around a mildly bullish 20 Simple Moving Average (SMA), with buyers quickly adding on dips below the media. At the same time, technical indicators hover around their midlines without clear directional strength. Finally, the longer moving averages maintain modest bullish slopes far below the current level.
The near-term picture is neutral-to-bearish. Converging 20 and 100 SMAs provide resistance around the aforementioned intraday high, while the 200 SMA aims north at around $2,465. The Momentum indicator aims lower at around its midline, skewing the risk to the downside without confirming it. Finally, the Relative Strength Index (RSI) indicator holds directionless at around 50, lacking directional strength.
Just two weeks after lowering its Brent oil price estimate to $80 per barrel for the fourth quarter, Morgan Stanley cut again its forecast, now expecting the international benchmark to average $75 a barrel in the last quarter of the year.
Analysts at Morgan Stanley see rising headwinds on the demand side, which has been their key reason for cutting their Q4 oil price forecast.
“The recent trajectory of oil prices has similarities to other periods with considerable demand weakness,” Morgan Stanley analysts wrote in a Monday note carried by Bloomberg.
The time spreads on the oil’s futures curve have been signaling “recession-like inventory builds,” the analysts noted.
However, they wrote that it was too early to make that part of Morgan Stanley’s base-case scenario.
Monday’s downward revision to oil price forecasts is Morgan Stanley’s second such cut in a little over two weeks.
At the end of August, the Wall Street bank cut its Brent price forecast for the fourth quarter to $80 per barrel, down from $85 expected earlier.
Back then, Morgan Stanley said that the lowered oil price forecast reflected expectations of increased supply from OPEC and non-OPEC producers amid signs of weakening global demand. The bank anticipates that while the crude oil market will remain tight through the third quarter, it will begin to stabilize in the fourth quarter and potentially move into a surplus by 2025.
Early on Monday in Asian trade, Brent Crude prices traded at just below $72 per barrel, after settling on Friday at just above $71—the lowest level since June 2023.
Morgan Stanley isn’t the only major investment bank to have cut its oil price forecasts in recent weeks.
Goldman Sachs has lowered its expected range for Brent oil prices by $5 to $70-$85 per barrel, on the back of weaker Chinese oil demand, high inventories, and rising U.S. shale production.
Citi, for its part, sees $60-per-barrel oil prices next year if OPEC+ fails to implement more production cuts, amid slowing demand and strong supply coming from non-OPEC producers.
Recent U.S. labor market data has fueled speculation about an aggressive rate cut. Private employers added the fewest workers in over three years in August, signaling a sharp slowdown in hiring. This follows a drop in U.S. job openings in July, further reinforcing concerns about the strength of the labor market. ADP’s employment data triggered a notable uptick in gold prices, as market participants viewed the labor market as being in a precarious state.
“The labor market is in a dire state, and there is a lot of concern about it,” noted Phillip Streible, chief market strategist at Blue Line Futures. Additional weekly jobless claims data also failed to improve sentiment, increasing the likelihood of a larger-than-expected rate cut.
Fed’s Rate Cut Expectations Depend on NFP Data
Currently, traders see a 59% chance of a 25-basis-point rate cut at the Fed’s next meeting, with a 41% probability of a more substantial 50-basis-point reduction, according to the CME FedWatch tool. The Fed has signaled that incoming economic data, particularly employment figures, will play a key role in determining the size of the cut.
San Francisco Fed President Mary Daly emphasized that the central bank must take action to protect the labor market, but the extent of the move hinges on Friday’s NFP report. Should unemployment rates remain elevated at 4.3%, gold could push towards record highs as markets price in a larger rate cut.
NFP Report: Scenarios to Watch for Gold Traders
The August NFP report is expected to show a gain of around 160,000 jobs. A result in line with expectations would likely favor a 25-basis-point rate cut, maintaining gold’s recent strength without significant volatility. However, if the jobs number comes in lower, potentially reflecting a more serious economic slowdown, the likelihood of a 50-basis-point cut increases, which would likely boost gold prices further as traders seek safe-haven assets.
Conversely, stronger-than-expected job growth could dampen the prospects of a large cut, leading to potential selling pressure on gold as investors reassess the Fed’s stance.
Gold price holds Friday’s rebound, near $2,500, as the US CPI week kicks in.
The US Dollar tracks US Treasury bond yields uptick amid a modest risk-recovery.
Gold price stays confined between two key barriers but bullish RSI keeps buyers hopeful.
Gold price is trading on the front foot just shy of the $2,500 threshold early Monday, consolidating Friday’s late rebound. Gold price sticks to its familiar range, as traders brace for the US Consumer Price Index (CPI) data due later this week to confirm the size of the Federal Reserve (Fed) interest rate cut next week.
Gold price bides time, underpinned by dovish Fed bets
Gold price clings to the critical short-term daily support level, now at $2,498, finding support from a broadly risk-averse market environment even though the US equity futures rebound in early dealings.
Softer-than-expected China’s inflation data raise demand concerns in the world’s top consumer, fuelling speculations that Chinese authorities could roll out more stimulus measures to stimulate economic prospects, supporting the non-yielding Gold price. China’s inflation rate grew 0.6% in August over the year, lower than the 0.7% expected. Every month, the CPI rose 0.4%, lower than the 0.5% expected.
Increased bets for an outsized Fed rate cut this month help maintain the bullish outlook for Gold price from a wider perspective. However, the further recovery in Gold price could be capped, as the US Treasury bond yields see a modest uptick, courtesy of the improvement in the US stock futures, providing fresh legs to the US Dollar (USD) turnaround.
The USD staged a late recovery on Friday after hitting a fresh eight-day low against its major rivals, in an immediate reaction to the disappointing US labor market report. US Nonfarm Payrolls rose by 142,000 missing a 160,000 gain estimated. On the other hand, the unemployment rate edged down to 4.2%, in line with expectations.
Discouraging US employment data rekindled worries about a possible economic downturn, smashing risk assets such as Wall Street indices. The sell-off in US stocks sparked the haven demand for the Greenback, allowing it to stage a late comeback.
The risk-off sentiment fuelled demand for the US government bonds, weighing heavily on US Treasury bond yields on Friday, helping cushion the downside in Gold price.
Looking ahead, Gold price could extend its range play until Wednesday, when the US inflation data will be published. The data is likely to ramp u volatility around the US Dollar and, in turn, the Gold price. US inflation data will be key to gauging the magnitude of the upcoming Fed rate cut.
Gold price technical analysis: Daily chart
Heading into the new week, the short-term technical outlook continues to remain constructive so long as Gold price holds above the 21-day Simple Moving Average (SMA), now at $2,498.
The 14-day Relative Strength Index (RSI) also rebounds while above the 50 level, adding credence to the bullish potential in Gold price.
Recapturing the $2,500 level on a daily closing basis is critical for Gold price to strengthen its bullish bias. The next relevant topside barrier is seen at the record high of $2,532, above which the $2,550 psychological level will come into play.
If Gold price faces rejection once again near the $2,530 supply zone, the correction would require a daily closing below the 21-day SMA at $2,498. A breach of the latter will challenge the previous week’s low of $2,472.
Further down, sellers will need to crack the symmetrical triangle resistance-turned-support at $2,459 to initiate a sustained downtrend.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
International crude oil prices have been on a broader downtrend and crashed nearly 20 per cent in the last 12 months due to a demand-supply imbalance in the market, even as the Organisation of Petroleum Exporting Countries and its allies (OPEC+) eye price stability. Brent and US West Texas Intermediate (WTI) crude futures logged the steepest year-to-date (YTD) crash last week after mixed US jobs data and a potential resolution of the Libya deal.
Amid the price decline, the OPEC+ group agreed last week to pause its planned oil output hike for two months after the benchmark Brent crude futures crashed to a 14-month low due to fragile demand and plentiful supply. OPEC nations will not proceed with the scheduled hike of 180,000 barrels per day (bpd) in October.
Brent crude plunges 20% in 12 months: What led to the crash in oil price?
-Commodity analysts said crude oil prices are weaker because of the current oil market conditions. They added that OPEC is ‘artificially’ curtailing oil production and losing its market share to maintain Brent above $80 per barrel.
-”US is producing more crude oil than any nation at any time for the past six years in a row, according to EIA. US output was 13.1 mbpd in 2023, which is expected to further jump to 13.19 mbpd in 2024 and 13.65 mbpd by 2025 and this record is unlikely to be broken by any nation in the near term,” Mohammed Imran, Research Analyst at Sharekhan Commodities by BNP Paribas told LiveMint.
-According to experts, benchmark Brent crude futures is unlikely to touch the $100 mark until and unless there is an escalation of the Middle Eastern war turning into a full-blown war involving major producers in the region.
-OPEC is likely to extend the curbs through the second half of this year and might start unwinding from early 2025. Crude is expected to trade in a range of $70 – $90 per bbl this year, with OPEC keeping a floor under prices,” Kaynat Chainwala, AVP-Commodity Research of Kotak Securities told LiveMint.
-US government data showed employment increased less than expected in August. Still, a drop in the jobless rate to 4.2 per cent suggested an orderly labor market slowdown that may not warrant a big interest rate cut from the Federal Reserve this month. Concerns around Chinese demand also kept pressuring oil prices.
-Last Thursday, Brent settled at its lowest since June 2023 despite withdrawing from US oil inventories and OPEC+’s decision to delay planned oil output increases. US crude stockpiles fell by 6.9 million barrels to 418.3 million barrels last week, with a projected decline of 993,000.
-Signals that Libya’s rival factions could be closer to an agreement to end the dispute that has halted the country’s crude exports also pressured oil prices this week. Exports remained mostly shut in, but some loadings were permitted from storage.
-Bank of America lowered its Brent price forecast for the second half of 2024 to $75 a barrel from almost $90 previously, it said in a note on Friday, citing building global inventories, weaker demand growth and OPEC+ spare production capacity. The US active oil rig count, an early indicator of future output, remained unchanged at 483 this week, said energy services firm Baker Hughes.
Crude oil prices settled two per cent lower in the previous session, with a big weekly loss after data US jobs data was weaker than expected in August, which outweighed price support from a delay to supply increases by OPEC+ producers.
Brent crude futures were down $1.63, or 2.24 per cent, to $71.06 a barrel, their lowest level since Dec. 2021. US West Texas Intermediate crude futures fell $1.48, or 2.14 per cent, to $67.67, their lowest since June 2023. For the week, Brent declined 10 per cent, while WTI dropped around eight per cent. Back home, crude oil futures last settled 0.07 per cent lower at ₹5,700 per barrel on the multi commodity exchange (MCX).
OPEC says its member states’ exports account for about 49 per cent of global crude exports. OPEC estimates that its member countries hold about 80 per cent of the world’s proven oil reserves. Because of its large market share, OPEC’s decisions can affect global oil prices. OPEC+ members meet regularly to decide how much oil to sell on global markets.
Commodity analysts say oil prices continue to see high volatility but have remained under selling pressure overall amid further signs of a deteriorating global economic outlook, leading to sluggish demand (especially from China).
“Downside looks limited amid support from bigger than expected drawdown in oil inventories and OPEC+ member’s decision to continue with their additional output cuts. On charts… prices hold support at 5,800/ 5,720, while on the upside resistance is seen at 6,030/ 6,150,” said Pranav Mer, Vice President, EBG – Commodity & Currency Research, JM Financial Services Ltd.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
