WTI-Brent Spread Set To Narrow, Gold To Remain Elevated On Weak USD

Talking Points

• WTI Brent spread narrows on US export story
• US Dollar slump to support gold
• Copper turns to upcoming China data

WTI Crude has popped back above the $106.00 handle as reports of relaxed restrictions on US oil exports offset negative cues from an unanticipated jump in inventories. Meanwhile, heightened geopolitical tensions and a weaker greenback could continue to keep gold and silver elevated. Finally, copper is set for its 10th straight day of gains ahead of Chinese Industrial Profits data set to cross the wires on Friday.

WTI Brent Spread Narrows

The US Commerce Department has confirmed initial reports from newswires that an ultra-light grade of oil has been permitted for export by US refiners. The decision relaxes a ban on US oil exports that has been in place since 1975, and threatens to bring fresh supplies of condensate to the international market. This in turn could stand to narrow the spread between the WTI and Brent benchmarks. While a noteworthy development in the US energy market, exports would likely not take place for some time, leaving further gains for WTI hinge on speculation alone in the short-term.

The export story may have overshadowed concerns of lessened demand for the growth-sensitive commodity on the back of a sharp revision lower to US first quarter growth, alongside a disappointing set of Durable Goods Orders figures. Additionally, traders seemingly looked past an unanticipated rise in total crude stockpiles reported by the Department of Energy.

Of additional note, the dip in the Brent crude benchmark in recent trading, suggests fears over supply disruptions from Iraq may be dissipating. As noted in recent commodities reports, the crisis in the Middle East holds the potential to spark significant volatility for prices. However, at this stage Iraqi crude output has likely been unaffected, suggesting that the conflict offers only a short-term source of support on speculation alone.

US Dollar Slump, Geopolitical Tensions To Keep Gold Elevated

Following a drop in recent trading, the greenback may be set to extend its declines barring an upside surprise to looming US inflation data. Given Fed officials have expressed little concern over a recent pickup in the gauge of consumer prices, it would likely take a material lift to the May PCE print to shift current policy expectations. In the absence of a material deviation from expectations, the US Dollar may continue its drift lower, which could keep gold and silver elevated.

The precious metals may also be afforded continued support from the ongoing unrest in the Middle East. With the conflict showing little signs of a swift resolution at this point, heightened geopolitical concerns could bolster safe-haven demand for the alternative asset.

Copper Extends Gains Ahead of China Data

The first expansionary reading this year for a key gauge of Chinese manufacturing released on Monday may have alleviated fears over a further slowdown in economic growth for the Asian giant. The encouraging print for the leading indicator has likely bolstered copper prices, helping the base metal extend its recent gains for a tenth consecutive session. Upcoming China Industrial Profits data for May, while of less importance, may help give copper further guidance. A print above or greater than the prior reading of 9.6 percent would help suggest a stabilization in the industrial sector, which in turn could help push the growth-sensitive commodity higher. Full details and times for the release available on the economic calendar here.

CRUDE OIL TECHNICAL ANALYSIS

With the uptrend intact for crude oil, pullbacks to support at 105.00 are seen as an opportunity to enter new long positions. A daily close above nearby resistance at 107.60 would open the psychologically-significant 109.00 handle.

Crude Oil: Pullbacks To 105.00 Offer New Long Entry Opportunities

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS

Gold may be primed for a push higher given signs of an uptrend have emerged on the daily chart. A break above several resistance levels and spike in volatility also suggests the potential for further gains. The slight pullback to support at 1,310 is seen as an opportunity for new long entries, with a target offered by the April high near 1,330. While several Doji candlesticks hint at hesitation from traders, they alone are not enough to signal a potential correction.

The DailyFX Speculative Sentiment Index suggests a bullish bias for gold based on trader positioning.

Gold: Breakout Affords Bullish Bias

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS

Silver may be set to extend its recent gains following a break above the 61.8%Fib Retracement Level at 20.80. With an uptrend on the daily intact, the March highs near 21.66 look attainable.

Silver: Sets Sights On 21.66

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS

The trend appears to have shifted to the upside for copper following a push above a key resistance level at 3.10. However, skepticism over further gains may be warranted given the base metal has not seen this many consecutive up-days since August 2013. Sellers will likely look to keep the base metal contained below the 3.19 mark.

Copper: Consecutive Bars Pushes Extremes

Daily Chart - Created Using FXCM Marketscope 2.0

PALLADIUM TECHNICAL ANALYSIS

Palladium’s recovery is seen as an opportunity to enter new short positions given resistance at 836 hangs nearby, and signs of downtrend have emerged. Buyers would likely look to keep the precious metal supported at the 805 mark.

Palladium: Facing Potential Correction

Daily Chart - Created Using FXCM Marketscope 2.0

PLATINUM TECHNICAL ANALYSIS

Platinum’s consolidation continues following the bounce off its range-bottom at 1,424 on the back of a Hammer formation. The emergence of a Hanging Man candlestick on the daily offers a potential reversal signal, however it has yet to be confirmed by a successive down-day. A correction may be met by buying support at 1,424.

Platinum: Hanging Man Suggests Bears Returning

Daily Chart - Created Using FXCM Marketscope 2.0

Written by David de Ferranti, Currency Analyst, DailyFX

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