Oil drifting, investors eye US crude inventories

Oil prices were almost unchanged overnight, with Brent Crude closing at USD41.25 a Barrel, and WTI closing at USD39.75 a barrel. With the US dollar in the ascent in Asia today, both contracts have eased further, falling 0.55% to USD41.45 and USD39.50 a barrel, respectively.

With no US weather-related premium left in crude prices, sentiment remains fragile, and tonight’s official US Crude Inventory data assumes greater than usual importance. Inventories are expected to fall by 2.3 million barrels. A surprise increase could well be enough to initiate another downward leg in crude prices.

Brent crude is hovering just above its 100-DMA support at USD41.15. Failure opens up a potential test of the multi-day lows in September between USD39.30 and USD39.50 a barrel. Resistance remains far distant at USD44.00 a barrel.

WTI closed just below its 200-DMA at USD39.90 a barrel overnight, yet another bearish technical development. Support lies at USD39.55 a barrel, its 100-DMA, with failure opening up further losses to USD38.00 a barrel.

Notably, the respective relative strength indices (RSI’s) for both contracts are at solidly neutral levels, implying that short-term positioning is not directionally extreme. That leaves plenty of room for short-term directional momentum trading to dominate.

Gold’s price action overnight is ominous

Despite a rise in Wall Street equity markets, gold continued to fall overnight, finishing 0.65% lower, clinging to support at USD1900.00 an ounce. A stronger US dollar was likely the main culprit for gold’s underperformance, but I note with concern its directional divergence with equities also.

That divergence suggests that gold may yet probe the downside to cull extended long-positioning in the markets. It may take its cues from silver, which also had a comparatively quiet overnight session. Of course, readers may note my incredible track record of being a leading reverse indicator of short-term gold price movements, and start clicking the buy button aggressively. Market intelligence comes in all shapes and forms.

Gold has crept higher to USD1902.00 an ounce this morning but faces resistance nearby at USD1905.00 and USD1920.00 an ounce. The overnight low at USD1895.00 an ounce and Monday’s low at USD1882.50 an ounce will provide initial support, with must-hold support being the August low at USD1863.00 an ounce.