WTI crude oil held onto the $78 per barrel mark on Thursday, following a three-day surge in prices driven by investors responding to Federal Reserve remarks and mixed news of US crude inventories. Meanwhile, gold prices are on the rise, moving closer to $1,880 per ounce as Federal Reserve Chair Jerome Powell’s comments were not quite as hawkish as many had predicted. This has allowed gold to rebound from its one-month low.
On Wednesday, a number of Federal Reserve members made it clear their mission is to combat inflation through additional rate hikes, which has been an area of anxiety among investors. Furthermore, the US Energy Information Administration reported that crude inventories rose last week instead of reducing as was suggested by Tuesday’s American Petroleum Institute report.
In the last three days, crude oil skyrocketed by 7%, as a result of numerous supply disruptions in energy markets and speculation around the ban on European imports, which was established over the weekend along with Russia’s price caps for its oil products. Moreover, investors believe Chinese demand will soon recover, further bolstering sentiment.
Oil Holds on Weekly Gains
Despite today’s lower correction, crude oil prices are maintaining weekly gains of 3.27% due to high hopes of an expedient rise in demand from China, the world’s second-largest oil consumer. This comes after they ended their stringent COVID policy involving city lockdowns and mass testing that had been imposed for more than three years.
Conversely, the rise in US crude inventories pushed back oil prices. Oil inventories reached the highest levels since June 2021 increasing by 2.4 million barrels to 455.1 million barrels in the week ending February 3, 2023.
“U.S. crude oil inventories are about 4% above the five year average for this time of year.” according to the EIA report.
WTI is testing 61.8% Fibonacci retracement level for the downside move initiated Jan. 27, closing above $78.75 would open the door for more gains targeting the $80 threshold followed by January highs around $82.60 per barrel.
On the flip side, failure to surpass the current levels may get the oil bears in control pushing prices all the way down to month-to-date lows around $72.
Meanwhile, Brent crude surged past $85 per barrel on Thursday, pursuing its upside move for the 4th consecutive session. Over the past three days, the international oil benchmark has surged more than 6%.
Gold Bounces from Monthly Lows
Gold is hovering near its new weekly peak of over $1,880, following the rebound from monthly low of $1,872.00 amid improving risk appetite. The XAUUSD is anticipated to extend its upside move in line with declining US Treasury yields. However, hawkish comments from the Fed may dampen demand for the yellow metal.
On the hourly chart, XAUUSD is trapped in sideways trading between $1886 and $1860 levels. A clear break through either is critical for anticipation the next direction. A surge above the upper limit will spur further recovery towards $1900 mark followed by the 100 SMA at $1905. On the downside, daily closing below Feb. low $1860 would trigger a bearish move towards the support area between $1830-20.
As U.S. interest rates are expected to go up, non-yielding assets like gold become less attractive due to the increased opportunity cost. Also, with the global manufacturing data continues to show signs of a downturn, markets are worrying that rising interest rates could be hindering economic activity in the near future.
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