Article by: ETO Markets
The oil market faces a complex and dynamic outlook characterized by tight supply and fluctuating demand. Constructive fundamentals, such as the return of Chinese demand and global economic optimism, suggest strength in the near term, supported by central banks potentially easing policies to boost commodity demand. However, vulnerabilities in supply chains, Russia's oil ban, and China's reopening continue to drive market uncertainty. Despite these factors buoying spot prices, challenges remain. A poor macroeconomic outlook in China, a focus by U.S. policymakers on reducing oil prices, and high prices potentially curbing demand point to slowing global oil demand in 2024. Increased OPEC+ supply, the potential for an Iran nuclear deal, and a stronger USD could further exert downward pressure. Longer-term concerns include insufficient investment in oil R&D and structural supply issues, but near-term pressures like the energy crunch and mobility restrictions from COVID variants may wane. While high prices typically self-correct and the oil rally appears unsustainable, oversupply risks into next year and seasonal weaknesses suggest headwinds for oil, even as broader energy and shipping markets present mixed signals.
Gold prices (XAU/USD) have regained some positive traction following a profit-taking pullback from a five-week high near $…, although the rally lacks strong follow-through buying. Geopolitical risks, such as the Russia-Ukraine war and tensions in the Middle East, along with concerns over US President-elect Donald Trump's tariff plans, continue to boost safe-haven demand for gold. Additionally, expectations that the Federal Reserve (Fed) will implement a third consecutive rate cut at the end of the December policy meeting provide some support for the non-yielding metal. However, the upside for gold is limited by expectations that the Fed will take a more cautious approach to interest rate cuts, as progress in lowering inflation to its 2% target has stalled. This outlook, combined with rising US Treasury bond yields, strengthens the US Dollar (USD), helping it maintain its gains and capping gold’s price potential. Traders are likely to remain cautious ahead of the upcoming two-day FOMC policy meeting, where further direction on US monetary policy is expected.
From a technical standpoint, if gold prices (XAU/USD) rise above the $… level, they are likely to encounter resistance around the $… region, which marks the monthly high reached on Thursday. A sustained move above this level could push prices towards the $… intermediate resistance. If surpassed, prices may aim for the all-time high near $… from October. On the downside, the $… range has become a key support area. A break below this support could trigger technical selling, opening the door for further declines towards the $… zone, where the 50-period Simple Moving Average (SMA) on the daily chart converge. If this level is broken decisively, gold prices may weaken further, targeting the $… region, followed by the psychological $… mark.
West Texas Intermediate (WTI) US Crude Oil prices gain a bullish momentum in this week and trade around $… during the Asian session on Friday. Although the commodity remains on track for strong weekly gains, it faces mixed fundamental drivers. OPEC+ recently decided to delay planned supply increases by three months and extend the full unwinding of cuts until 2026, reflecting concerns over potential demand slowdown, which weighs on prices. Additionally, the International Energy Agency forecasts that non-OPEC+ nations will boost supply by 1.5 million barrels per day next year, outpacing the expected demand growth of 1.1 million bpd, adding pressure on crude prices. However, downside risks are limited by supply concerns linked to tighter sanctions on Russia and Iran. Support is also drawn from hopes that Chinese stimulus measures could boost demand and signs of US economic resilience. Despite these mixed factors, the market remains range-bound, warranting caution before making aggressive directional moves on oil prices.
From a technical perspective, crude Oil prices have recently surged, driven by thinner trading volumes typically seen at year-end. If this momentum continues into the next week, the price could potentially rise beyond the $… level before Christmas. The 55-day Simple Moving Average (SMA) at $… is currently being tested and needs to close above it for it to act as support. If prices continue higher, the 100-day SMA at $… will serve as key resistance. On the downside, it remains uncertain if the round level $… will hold as support, with $…, a previous support from the last three months, being the next solid level to watch. Below that, the 2024 year-to-date low at $… is the important downside targets.
