By Bharani Krishnan
Investing.com – With the Federal Reserve raising interest rates for July and the US already in recession, albeit technically only, the oil market is only concerned about one thing – what OPEC+ will do next week.
As for gold, the focus is on yields and bonds after a sharp rise in the PCE index on Friday as the central bank’s preferred inflation index rose with the central bank’s fourth rate hike this year.
OPEC+: The alliance that brings together the 13 members of the Petroleum Exporting Countries (OPEC), which is led by 10 oil producers led by Russia – meets on Wednesday to decide production quotas for each of the group’s 23 countries. In September.
Reports so far indicate that OPEC+ is likely to hold production steady or raise it slightly in September.
When President Joe Biden stepped off Air Force One in mid-July for a meeting with Saudi Crown Prince Mohammed bin Salman, much of the media hyped the visit to coincide with a goodwill gesture by key OPEC to boost oil production. The country, when such a gesture did not immediately appear, came the narrative of mission failure.
Anyone with a better understanding of OPEC’s true intentions and how those intentions translate into its production targets, as well as how long it might take to implement diplomatic efforts on the ground, will have very different expectations compared to the media hype. That includes White House officials who have made clear from the start that any increase in production will be determined over time.
Anyone familiar with OPEC+ knows that while the Saudis have a key stake in the creation of the alliance, the close relationship between the House of South and the Kremlin — especially between the crown prince and Vladimir Putin — should never be ignored.
The Russian president is determined not to allow the United States to gain any advantage as a result of his country’s war against Ukraine. That includes benefits offered by an oil-producing alliance that includes Moscow — especially when Western sanctions have already caused deep cuts in Russian crude prices, not to mention Biden’s efforts to control the price of that oil.
As expected, less than a week before Biden’s visit, Putin held a call with Crown Prince Mohammed bin Salman to remind them of the importance of continued cooperation between the two countries in the spirit of OPEC+.
Russian Deputy Prime Minister Alexander Novak met with Saudi Energy Minister Prince Abdulaziz bin Salman on Friday, after which Moscow issued a statement: “Russia and Saudi Arabia remain committed to the objectives of the OPEC + agreement to stabilize the market and supply and demand balance in the world oil markets.
But Mohammed bin Salman’s position is a bit more sensitive. After shaking his fist at Biden, at least trying to thaw the cold war between him and Biden, he once vowed to make his kingdom a pariah for the killing of Saudi-born, US-based journalist Jamal Khashoggi, who the CIA says was killed. By order of Biden. But the Saudis of course deny this claim.
MBS wants to see more US support for Riyadh’s involvement in the Yemen conflict. Both the crown prince and his counterpart in the United Arab Emirates, Mohammed bin Zayed Al Nahyan, have been frustrated in the past by Biden’s indifference to them and his failure to address Gulf concerns about Iran’s missile program and its regional proxies. All this changed promisingly with the arrival of Biden.
Before Biden’s arrival, OPEC+ had already increased production by 50% compared to June levels to nearly 650,000 barrels per day in July and August. If you keep it in September or raise 10,000 or 20,000 b/d, that’s still good from a coalition perspective and a win for Biden – albeit limited. Most importantly, OPEC+ should not cut production at this stage. And there is a risk of this happening if the price continues to fall. It is worth noting that the price of oil, which was the highest at the time of the invasion of Ukraine, which was 140 dollars in March, fell to 100 dollars last week.
Under current circumstances, OPEC+ would have reversed all historic pandemic-era production cuts by next month. Currently at a crossroads in production.
Oil: Settlements and Market Activity
West Texas Intermediate crude rose for the third time in a week on Friday, but closed below the key $100 a barrel level and fell for the second month in a row in July.
London-traded Brent crude, the global benchmark for oil, was above triple-digit price levels but also posted losses in July.
West Texas Intermediate crude for September delivery traded at $98.30 a barrel after rising $2.20, or 2.3%, to settle at $98.62 in Friday’s session.
On the week, West Texas Intermediate crude for September delivery rose 4.1% after falling 13% in the previous three weeks.
After falling 7.4% in June, WTI posted a monthly loss of 7.2% in July.
Brent crude for October delivery settled at $104 after rising $2.14, or 2.1%, to settle at $103.97 in Friday’s session.
On the week, Brent crude for October delivery rose 5.7%, extending its 2.7% gain last week. Prior to that, Brent crude was down 17% overall in the five weeks.
Brent crude for October delivery was down around 4.5% in July after falling 5.7% in June.
Oil: West Texas Intermediate crude price forecast
Sunil Kumar Dixit, chief technical strategist at skcharting.com, said the weekly formation for WTI indicates a continued recovery in prices, at least from a technical perspective.
“As long as prices remain above the 50-week high moving average of $93.08, momentum will lift prices back to the weekly high of $101.87,” Dixit said. It extended the 38.2% Fibonacci retracement level of the $62.45-130.50 operating range and the $107 weekly Bollinger Band average.
But based on the weak WTI result for July, the monthly chart still points to a bearish outlook, citing a flat reading of 53/65 and continued negative overlap.
He added, “Weakness below the 50-week moving average at $93.08 will add sell appeal to $90.58.”
Adjustment and market activity
After New York’s benchmark Comex August ended its final trade at $1,764 on Friday, the session rose $12.60, or 0.7%, to $1,762.90. The maximum amount of the session is 1765.85 dollars.
By the end of the week, gold in August contracts was up 2.1%, the highest level since a 4.2% increase in the week ended February 25.
After the August contract expired, the December Comex’s most active gold contract rose $12.60 to $1,781.80 on the day. The price of gold in December was $1,784.60.
Ed Moya, an analyst at online trading platform Oanda, said gold could continue to rise to $1,800 if the dollar and bond yields fall beyond expectations of a steady rate hike by the Federal Reserve for the rest of the year.
Gold rose after the Commerce Department reported on Thursday that US gross domestic product grew a negative 0.9% in the second quarter, following a 1.6% contraction in first-quarter gross domestic product. Notably, consecutive negative quarters pushed the economy into recession.
But the personal consumption expenditure index – an inflation indicator closely followed by the central bank – rose 6.8% in the year to June after being inactive in the previous two months, intensifying the central bank’s war on inflation.
June’s rise in personal consumption expenditures signaled that inflation has risen steadily for four decades and that the central bank may not complete its massive rate hikes this year to combat rising prices. The central bank has already raised interest rates four times this year since March, and the last two 75 basis point hikes were the highest in 28 years.
Gold: Price Predictions
Dixit from Sketches said the momentum helped gold overcome the $1,750 challenge and the “magic number” of $1,768 for a second week, this time at $1,765.
Weekly RSI rose to 41 from 32, he said, while Stochastic readings of 33/17 showed a decisive recovery.
“The key target is a technical confluence of the 50-week high moving average at $1,830 and the 100-week simple moving average at $1,831,” he said.
Dixit said the daily gold chart showed a support zone between $1,735 and $1,725. He said, “The daily stochastic is now at 96/89 and is moving towards overbought territory and may trigger a short-term correction near the $1,777 – $1,785 – $1,805 resistance range, leading to a price decline to $1,735 – $1,725.”
Disclaimer: Bharani Krishnan has no apparent positions in the products and securities she writes.
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