- WTI oil returns below $79 after brief euphoria.
- Oil traders are positioning higher, with net futures buying at its highest level since October.
- The US Dollar Index retreats below 104, with markets awaiting Friday's jobs report.
Oil prices are re-reading ahead of the US session, with optimistic sentiment quickly fading after headlines over the weekend confirming OPEC will persist with its production cuts through at least the second quarter , in line with expectations. Traders are seeing new bullish signs, as the Commodity Futures Trading Commission (CFTC) has noted that speculative net long positions have reached their highest level since October 2023. The OPEC cuts were voluntary, and Recent data points to a dramatic increase in February versus January. More countries will report in the coming days.
Meanwhile, the Dollar Index (DXY) is easing on Monday, with the Euro in focus ahead of this week's European Central Bank meeting. As for the US dollar, all eyes will be on Federal Reserve Chairman Jerome Powell, who will deliver his semi-annual testimony on Capitol Hill (and grilling Senator Elizabeth Warren). This comes before the release of the US employment report, which faces high expectations following February's bullish surprise.
Crude oil (WTI) is trading at $78.95 per barrel, and Brent is trading at $82.87 per barrel at the time of writing.
Oil News and Market Movements: Current Cuts Don't Matter
- OPEC+ agrees to extend its current supply cuts to address the excess supply from the US that is affecting the markets.
- Canada's newest and largest oil pipeline will come online in the coming weeks, according to MEG Energy Corp.
- According to a Bloomberg survey, despite production cuts, other OPEC members are pumping above average: Libya saw its production increase in February by 120 million barrels, which represents an 11.2% monthly increase, by resuming production from its Sahara oil field. Nigeria rose 2% in February.
- Iraq and the United Arab Emirates (UAE) are currently pumping about 400 million barrels a day above target.
Oil prices are buoyed following comments over the weekend from some OPEC delegates and people close to the decision being made. Although the cuts are welcomed to maintain current price levels, a small problem is emerging with countries that are not maintaining any curbs on supply, and are even increasing their production further. Add to this the already high US supply, and OPEC may have to internally ask all countries to stick to agreed quotas or further supply cuts may occur after the second quarter.
As mentioned in the previous article, net bullish speculative bets have reached their highest level since October 2023. These speculators could sit idly until oil prices reach $85 again, with $86.90 quickly following before aim for $89.64 and $90.00 as high levels.
To the downside, the 200-day SMA near $77.76 is the first contact point that offers some support. It is closely followed by the 100-day and 55-day SMAs, near $76.19 and $74.96 respectively. Adding to this the $75.27 level, it seems that the downtrend is very limited.
US WTI Crude Oil: Daily Chart
Frequently asked questions about Gold
Why invest in Gold?
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, aside from its brilliance and use for jewelry, the precious metal is considered a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.
Who buys more Gold?
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
What correlation does Gold have with other assets?
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing 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 the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
What does the price of Gold depend on?
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
