Crude Oil Prices Brace for Impact as Fed Chair Powell Speaks

CRUDE OIL & GOLD TALKING POINTS:

• Crude oil prices hover at one-month high as G20 summit approaches

• Gold prices continue to push higher on dovish global policy outlook

• Comments from Fed Chair Powell, API inventories data next on tap

Crude oil prices are idling near one-month highs amid a dearth of new fundamental catalysts as markets await the G20 summit starting Friday before showing directional conviction. It is expected to bring the resumption of US-China trade negotiations.

Simmering tensions between the US and Iran helped buoy prices last week but appear to have lost some of their potency. That is after US President Trump opted against a military response to last weeks downing of a US drone by Iranian forces.

Washington has moved to dial up sanctions instead, targeting the latest round directly at Supreme Leader Ayatollah Ali Khamenei and other top Iranian officials. Tehran responded with a vow to close the path of diplomacy “forever”, which markets seem to have mostly shrugged off.

Gold prices continue to rise in the meanwhile, reveling in a global downshift in interest rates as major central banks including the Fed, ECB, RBA and BOE telegraph a dovish policy pivot. An index tracking the global cost of 7- to 10-year credit from Bloomberg and Barclays has dropped to a three-year low.

CRUDE OIL, GOLD PRICES BRACE FOR IMPACT AS FED CHAIR POWELL SPEAKS

Looking ahead, scheduled remarks from Fed Chair Jerome Powell headline a busy offering of back-to-back pronouncements form US central bank officials. He seems likely to reiterate the somewhat more cautious rhetoric on display at the press conference following last weeks FOMC meeting.

How much scope such comments still have to drive policy bets will be a critical consideration for commodity prices. The markets outlook already calls for dramatic dose of stimulus, with three rate cuts and the wind-down of the QT balance sheet reduction program expected by year-end.

If the Fed is judged to be inching closer in line with investors thinking, it may be seen as endorsing fears of a market-wide selloff ahead. This could trigger another round of de-risking, sending crude oil lower alongside stock prices. Gold might remain supported, but a resurgent US Dollar might limit the upside.

API crude oil inventory data is also due to cross the wires. It will be judged against expectations for a 2.86-million-barrel drawdown expected to be reported in official EIA statistics on Wednesday. A larger draw might amplify any sentiment-linked losses, while a smaller one mitigates them.

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GOLD TECHNICAL ANALYSIS

Gold prices are hovering within a hair of the August 2013 high at 1433.85. This barrier is reinforced by support-turned-resistance at set from December 2016. A daily close above this barrier opens the door for a test above the $1500/oz figure. Support begins at 1392.08, with a break below that eyeing 1375.15 next.

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices remain pinned to resistance in the 57.24-88 area. Breaking above this barrier on a daily closing basis targets the 60.39-95 zone next. Alternatively, a turn below near-term support running through 54.55 paves the way for a test of the 50.31-51.33 region.