WTI Slides to Test 200DMA in $94s, Gold Rebounds from Test of 2021 $1,680 Lows

Key Points

• WTI slid to test its 200DMA in the $94.50 area on Thursday.
• An easing of Eurozone energy crisis fears as Russia restarted gas flows and unexpected US gasoline inventory growth weighed.
• Weak US data and a fall in US yields helped gold recover from a test of 2021 lows.

Oil Prices Slide, Test 200DMA on Bearish Cocktail of Developments

Oil prices fell sharply on Thursday. CFDs tracking the price of the benchmark US grade of sweet light crude oil, West Texas Intermediary (or WTI) were last down close to $4.0 per barrel on the day in the $96s. Prices did find support at their 200-Day Moving Average just above $94.50.

Oil markets have been hit by a combination of bearish developments in the last day or so. Russia’s state-owned gas producer/exporter Gazprom restarted gas flows to Germany via the Nord Stream 1 pipeline on Thursday, providing some modest relief to European energy crisis fears. If Russia decides to halt gas flows to Europe, this would trigger gas rationing and a rush for alternative fossil fuel energy sources, including oil.

Meanwhile, data on Wednesday showed that US gasoline inventories rose more than expected in the week just gone. One analyst interpreted the data as showing that “US gasoline demand is struggling to shift into top gear during the peak summer season”. Others speculate that this could be due to demand destruction after US gasoline prices at the pump hit record highs last month.

Market commentators were also citing a resumption in oil production across a series of oil fields in Libya on Thursday as easing global supply shortage concerns after numerous oil fields declared a force majeure last week. Libyan output has been stop-start in recent years, hamstrung by political instability.

Elsewhere in energy, US natural gas prices were little changed in the $7.90 area, having earlier hit multi-week highs in the low-$8.0s.

Gold Recovers from Test of 2021 Lows Near $1,680

US yields fell across the curve on Thursday after data showed weekly US jobless claims rose to its highest level in eight months, though remained at healthy levels, indicative of a modest cooling of the US labor market. Meanwhile, the July Philadelphia Fed manufacturing survey deteriorated to its worst level in a decade (excluding the 2020 pandemic shock).

Thursday’s downbeat data seems to have contributed to a pick-up in US slowdown fears, despite the tone of corporate earnings have been mostly upbeat so far just over one week on from the start of the reporting season, hence the bond market reaction. The fall in US yields boosted gold, which is sensitive to changes in the so-called “opportunity cost” of investing in non-yielding assets (like monetary commodities).

Having slipped as low as just above $1,680 during Asia Pacific trade, where it probed 2021 lows, spot gold has since rebounded strongly to the mid-$1,710s. Gold is currently caught in the cross-hairs of, on the one hand, a weakening global growth outlook and, on the other, central banks that are aggressively raising interest rates. The negative impact of rate hikes as central banks scramble to tackle inflation has so far been the stronger force, with spot gold prices currently down over 5.0% this month.