WTI Slumps Over $4.0 To Below Its 200DMA; Weak PMI Data Darkens Demand Outlook

Key Points

• WTI fell sharply on Monday to the $93.00s, closing below its 200DMA for the first time since late 2021.
• Copper was also lower, with both commodities weighed by global growth fears after a series of downbeat manufacturing PMI releases.
• Gold continued to press higher amid more recession bets and a weaker USD and rose above $1,770 again.

WTI Closes Below 200DMA For First Time Since Late 2021

Benchmark US oil prices fell sharply on Monday, with front-month WTI futures prices dropping over $4.0 on the day to fall close below their 200-Day Moving Average at $95.00 for the first time since late 2021. WTI was last changing hands in the upper-$93.00s per barrel, up from two-week lows hit earlier in the session under $92.50 and with the bears eyeing a test of 14 July lows around $90.50.

Technicians think a sustained break below the 200DMA and near-term lows could open the flood gates to a drop all the way to support in the $85 area. And the fundamentals appear to be pointing in this direction. Market commentators said Monday’s weakness was as a result of weak US, Eurozone, Chinese and UK manufacturing PMI data triggering fears about the demand outlook.

Indeed, a worsening of global growth expectations amid weakening data has been a key factor weighing on oil prices in recent weeks since prices topped out for the summer above $120 back in early June. Some analysts also said a recent rise in oil output from OPEC+ member Libya to now around 1.2 million barrels per day, up from less than 800,000 in mid-July, amid an easing of political tensions there has also weighed on prices.

Speaking of OPEC+, the cartel of oil-producing nations is set to meet later this week. Sources last week said the group is set to consider either no change in its output policy in September or a modest increase. Oil bulls will be hoping this might offer prices some support, but the truth is that OPEC+ hasn’t lived up to its pledged output hikes now for over a year and a half, with its most recent short-fall in production as a result of falling Russian output given Western sanctions for its invasion of Ukraine.

In that regard, a lack of supply from OPEC+ nations is already very well priced into markets. The macro story may thus remain dominant this week, meaning global services PMI data on Thursday and US jobs data on Friday will be worth watching.

Copper Slips on Growth Fears, Gold Continues Upside Run

Copper prices fell on Monday, as concerns about global growth negated the weaker US dollar and fresh evidence of falling Chinese inventories of the red metal. But with prices still above $3.50, copper remains close to recent highs in the $3.60 area and well above recent lows under $3.20, having been supported in recent weeks amid optimism about new programs from Chinese authorities to boost the nation’s infrastructure development/struggling property sector, as well as evidence of declining output from the metal’s major global producers.

Gold prices, meanwhile, continued to advance on Monday, buoyed by the softening US dollar and also benefitting from fresh downside in US (nominal and real) yields in wake of the latest soft US manufacturing PMI data. Spot prices were last trading slightly above $1,770, up about 0.3% on the day and taking their four-day streak of gains to just over 3.0%. If US data out later this week (ISM Services PMI on Thursday and jobs on Friday) further contributes to recession concerns, then Fed tightening bets could be further pared and gold hit resistance in the $1,780s.