Crude Oil Prices May Fall on Soft Fundamentals, Risk Aversion

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CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices at risk on soft supply/demand outlook, risk aversion
  • Monthly EIA report, IEA’s Birol may highlight oil’s soft fundamentals
  • US GDP data, aborted Trump-Kim summit might stoke risk aversion

Crude oil prices rose alongside stocks as risk appetite improved, shrugging off early geopolitical jitters. The move accelerated higher as EIA inventory data revealed a sharp 8.65-million-barrel drop in crude stockpiles. That dwarfed expectations calling for 2.94-million-barrel build.

Gold prices fell as the US Dollar rose alongside Treasury bond yields, sapping the appeal of non-interest-bearing and anti-fiat assets. The priced-in 2019 monetary policy outlook implied in Fed Funds futures steepened in tandem, implying a shift toward a less-dovish baseline outlook as the underlying narrative.

Interestingly, the move began before the day’s offering of key US economic data and the second round of Congressional testimony from Fed Chair Jerome Powell. The absence of a discrete catalyst might speak to preemptive pre-positioning, which might have in part reflected the flimsy case for yesterday’s USD drop.

CRUDE OIL AT RISK ON ADVERSE SUPPLY/DEMAND OUTLOOK, RISK AVERSION

Looking ahead, fourth-quarter US GDP data is in focus. Expectations suggest the annualized growth rate slowed to 2.2 percent. While that is a notable climbdown from the 3.4 percent registered in the third quarter, it would still put the US in the top three fastest-growing developed economies.

A firm result might reinforce yesterday’s pro-USD shift in Fed policy bets, weighing on gold prices. If worries about a relatively more restrictive monetary stance hurt risk appetite, oil might follow suit. The abrupt end of the Trump-Kim summit in Vietnam might add to the downbeat mood.

Crude’s troubles may extend beyond sentiment however. The EIA monthly production report as well as scheduled testimony form IEA Executive Director Fatih Birol are likely to reiterate troubled supply/demand trends courtesy of slowing global growth and the continued swell in North American output.

See our guide to learn about the long-term forces driving crude oil prices!

GOLD TECHNICAL ANALYSIS

Gold prices are testing support defining the uptrend form mid-November once again. A bearish Evening Star candlestick pattern coupled with negative RSI divergence hint at topping. A daily close below the trend line and the dense support region running through 1249.10 that follows immediately thereafter would imply longer-term downtrend resumption. Minor resistance is at 1346.75, the February 20 high, followed by a trend-defining top in the 1357.50-66.06 area.

Crude Oil Prices May Fall on Soft Fundamentals, Risk Aversion

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are marking time within a hair of rising counter-trend support guiding the upswing from late December lows, currently at 54.88. Negative RSI divergence hints a top is in the works, but confirmation is needed on a daily close below this barrier. If that materializes, the 50.15-51.33 zone comes into focus next. Alternatively, a breach of resistance in the 57.96-59.05 area exposes trend line support-turned-resistance from February 2016. It is now squarely at the $62/bbl figure.

Crude Oil Prices May Fall on Soft Fundamentals, Risk Aversion

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