WTI Rebounds From Brief Dip Under 200DMA, Gold Slips 0.5%

Key Points

• WTI rebounded on Monday after a brief dip below its 200DMA, despite analysts remaining cautious on its near-term outlook.
• Copper prices were a little higher amid a risk-on tone in forex markets, while gold fell on higher yields.
• Commodity traders are looking ahead to key macro events including earnings, the Fed meeting and US GDP.

Oil Rebounds But Analysts Remain Bearish

Front-month futures of the American benchmark for sweet light crude oil, West Texas Intermediary or WTI, rebounded from a brief dip below its 200-Day Moving Average (currently at $94.70) on Monday and ended the US session over $1.50 higher in the mid-$96.0s. Despite the rebound, analysts remained cautious in their short-term outlooks for WTI on Monday, noting that as downside risks to global growth materialize, oil remains in a downtrend since mid-June.

Indeed, survey data out of the Eurozone’s economic powerhouse Germany on Monday was resolutely downbeat. According to IFO, the company that released the survey, Germany is knocking on the door of a recession. The data comes after similar survey data last Friday released by IHS Markit in the Eurozone, UK and US highlighted slowing growth/outright contraction of economic activity. Meanwhile, GDP data out of China overnight showed that its annual pace of growth came in at a sluggish 0.4% in Q2, the economy hampered by stop-start lockdowns and an ongoing property crisis.

A recent recovery in oil output from unstable OPEC producer Libya is another theme being monitored by oil traders that might also put some pressure on oil prices in the days ahead. Libya’s state-owned National Oil Corporation (NOC) said over the weekend that it aims to get production back to around 1.2 million barrels per day (BPD) within the next two weeks, up from current levels of around 860K BPD.

But analysts remain cautious on betting that Libya will be able to sustain such output levels for long, with the country still in the throes of political turmoil that frequently manifests itself in oil production blockades. Moreover, oil supply remains a net supportive factor for crude oil, with Russian output expected to decline further if Western nations impose price caps and with other OPEC nations still struggling to keep up with permitted output hikes.

Copper Rebounds, Gold Pulls Lower

A tentative start to the week in FX markets that saw the US dollar lose ground against some of its risk-sensitive peers like the loonie, Aussie and kiwi saw Copper prices gain some ground on Monday. Traders also cited news that China is set to launch a 300-billion-yuan fund to ease the debt crisis that has stymied China’s normally copper-guzzling property sector as supportive for copper prices.

However, analysts remained cautious on the red metal in their commentary, noting the recent materialization of downside risks to the global economy and the continued push by major central banks like the Fed and ECB to get inflation under control with rate rises as a negative for Copper’s outlook.

Elsewhere, a rise in global yields that was in part a technical rebound following last Friday’s dump and in part spurred by hawkish ECB commentary weighed on precious metal prices. Spot gold was last changing hands just under $1,720 per troy ounce, having shed about 0.5% on the day.

Commodity Traders Monitoring Macro Events This Week

The Fed is expected to bring interest rates back above pre-pandemic levels with a second successive 75 bps rate hike on Wednesday, while US GDP data on Wednesday will confirm whether or not the US economy fell into a technical recession in H1 2022. Meanwhile, equity investors will be digesting a barrage of corporate earnings releases, including from the likes of US giants Apple, Amazon, Google, Meta Platforms, Microsoft and Coca-Cola.

Oil and copper bulls will be that economic data and earnings point to a US economy that is holding up better than feared, whilst at the same time hoping that the Fed comes across as slightly more dovish.