Oil slumps on recession fears
Oil prices plummeted on Friday as increasing recession fears after soft US Manufacturing and Industrial Production data saw a mess sell-off in futures markets. Brent crude fell by 5.0% to USD 113.15 a barrel, but WTI plummeted by 6.0% to USD 110.00 a barrel. In Asia, Brent has edged 0.25% lower to USD 112.85, while WTI has fallen by 0.75% to USD 109.20 a barrel.
Looking at the price action, I am undecided whether Friday’s capitulation is the start of a repricing of oil lower as the world economy slows dramatically in the months ahead, or whether it was a capitulation of extended speculative long positioning in the futures markets. Chinese Customs reported record oil imports for May this morning, suggesting demand remains as strong as ever. That remains so around the world, and the squeeze on refined products like diesel and gasoline remain as tight as ever.
Friday’s falls have bought my six-month support lines back into focus. On Brent crude, that is at USD 107.00 a barrel today, just below its 100-day moving average (DMA) at USD 107.95. Ahead of this, it has support at USD 112.00, with resistance at USD 114.25 and USD 116.00 a barrel. WTIs six-month support line is at USD 106.00 a barrel, just ahead of its 100-DMA at 105.00. It has interim support at USD 108.25 and resistance at USD 112.50 a barrel.
Of the two, WTI looks the more vulnerable, having fallen further and closed closer to its multi-month support zone. If the US cuts federal fuel taxes, that could be enough to tip the scales lower. It is hard to see either contract moving lower than USD 100.00 a barrel given the state of the physical market. From a technical perspective though, I would ideally like to see one or both contracts tracing out a couple of daily closes below the support lines mentioned and the 100-DMAs, before reassessing my longer-term bullish outlook.
Gold range continues
It was another wax on, wax off day for gold on Friday as it retraced Thursday’s gains and fell by 0.88% to USD 1840.00 an ounce on US dollar strength. In Asia, it has gained slightly by 0.25% to USD 1845.00 an ounce.
Despite the noise of the past week, it remains anchored in the middle of its one-month range. The overnight price action shows that the inverse correlation to the US dollar is as strong as ever.
Gold has resistance at USD 1860.00 and USD 1880.00, the latter appearing an insurmountable obstacle for now. Support is at USD 1805.00 and then USD 1780.00 an ounce. Failure of the latter sets in motion a much deeper correction, while I would need to see a couple of daily closes above USD 1900.00 to get excited about the upside.
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He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays.
A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others.
He was born in New Zealand and holds an MBA from the Cass Business School.
