China and the Russian price cap weigh on crude
Events in China aren’t just hitting local equity markets, oil prices are also crumbling under the pressure of record Covid cases and huge economic uncertainty. The country’s commitment to zero-Covid has seriously damaged growth in the world’s second-largest economy and by extension, crude demand. This has helped to soften the impact of the Ukraine war on energy markets to some extent and we could be seeing it weigh on oil prices once more.
Discussions are also continuing on the details of the Russian oil price cap. Most notably, where it should be set. It’s looking increasingly likely to be done at a level that doesn’t particularly hinder Russia’s ability to sell crude – which is contributing to the drop in oil prices – or put its buyers in an uncomfortable position. The outcome will likely factor in how OPEC+ responds this weekend and I expect the rumour mill will therefore be busy as the week progresses, which in turn could trigger a lot of oil price volatility over the course of the week.
A volatile period ahead for gold?
Gold has performed well again over the last week but now appears to be settling ahead of a busy week of economic data. It’s now sitting in the middle of a potential new range between $1,780 resistance – a major level of support in the first half of the year – and $1,730 support – a big resistance level in September and October turned support last week.
With so much data coming from the US this week including inflation, GDP, and the jobs report, we could see one of these give way in the coming days, setting us up nicely for the Fed meeting in two weeks. The latest inflation data will also be released a little over 24 hours before that interest rate decision so it could be a volatile couple of weeks for the yellow metal.
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