WTI Falls Back to Test 200DMA in $94s, Gold Boost by Recession Fears

Key Points

• WTI fall back to test its 200DMA in the $94s and was on course for a third weekly drop.
• Oil prices were dented after US, Eurozone and UK PMIs bolstered global recession bets, hurting the demand outlook.
• Gold broke back into the $1,720s, boosted amid a sharp drop in global yields.

WTI Falls Back to 200DMA in mid-$94s, On Course for Third Successive Weekly Drop

CFDs tracking the price of the front-month WTI futures contract fell on Friday and looked set to end the week almost bang on their 200-Day Moving Average just above $94.50. That meant WTI was on course to post third successive weekly drop of nearly $3.0, a sharp reversal from earlier weekly highs in the mid-$104.00s, where prices had at the time been up closer to $7.0 on the week.

Downbeat July PMI data out of the US, Eurozone and UK showed all pointed to a global economy that is already stagnating or even already in recession, hurting the outlook for oil demand, thus weighing on prices. Friday’s downbeat data comes after data released earlier in the week revealed that US gasoline inventories had surprisingly risen in the week just gone, indicative of high prices deterring travel despite it being peak US driving season.

Despite signs that the global economy has already weakened significantly, major central banks such as the ECB and Fed continue to forecast significant tightening in the quarters ahead due to inflation remaining at multi-decade highs. The ECB raised interest rates by 50 bps this week, its first interest rate rise in 11 years. The Fed is expected to implement a second successive 75 bps rate hike next week. Higher interest rates on short-term debt adds to downside risks to the global economy and could further weigh on crude oil.

Tensions between the West and Russia kept WTI from sliding under its 200DMA and other key support levels, for now. Russia’s central bank head said the country would redirect its oil exports away from those who decide to impose a price cap. Elsewhere, despite lower crude oil prices, US natural gas prices continued to surge, hitting fresh multi-week highs in the $8.30s. Analysts say the US heatwave has forced US power plants to increase usage of the fuel in order to keep air conditioners working.

Gold Breaks into $1,720s as Yields Decline

Friday’s ugly US, Eurozone and UK PMI survey data and the subsequent sharp drop in global bond yields spurred upside in gold prices, which typically benefit from signs of a weakening global economy (if this dents the outlook for central bank tightening, which is the case on Friday) and when yields fall.

Lower yields mean a lower so-called “opportunity cost” of holding the non-yielding precious metal. Gold pressed as high as the upper-$1,730s, before reverting back to current levels in the low-$1,720s.

Meanwhile, the drop in global yields plus a US dollar that was indecisive meant that copper prices were broadly flat, if even a little higher, despite worries about the global economy. Copper is often looked at as a barometer for global economic health but, in truth, it is sometimes a better barometer of the health of the Chinese economy, its largest consumer.

Chinese officials have this week been jawboning about how they are going to stimulate the economy to shore up growth as the country struggles amid stop-start lockdowns. As a result, and also aided by this week’s USD pullback, Copper looks set to close out the week close to 2.5% higher.