Metals and Oil consolidate due to lack of fresh direction

July 20, 2020

London (July 20)  Metals have a lot of factors currently which are keeping prices buoyed above support at $1800.0 as the increasing number of covid-19 cases in the US fuel fears of a full or partial lock down in states and the ongoing tension between US and China which has raised doubts over a Phase 2 trade deal between both countries. Another key factor that is supporting prices is the likelihood that Joe Biden may win the presidency in the upcoming elections. Despite the positive factors, traders continue to focus on additional stimulus package from the US central bank Federal Reserve to further start buying precious metals. The technical picture remains bullish for precious metals – Gold prices are breaking out of a large ‘flag pattern’ on hourly charts and sustained activity above resistance at $1815.0 would see prices test $1825.0 and possibly higher this week whereas support (and reversal point) is seen at $1805.0-1800.0 this week. Silver futures has been the out performer over the past two weeks and could push higher to $20.50-$21.0 this week once prices break above resistance at $19.90 whereas support is seen at $19.75 this week.

Base Metals are trading with a mixed bias today with Nickel and Lead higher over half a percent each while Copper futures are down 0.20% to trade at $6427.50 currently. Aluminum and Zinc prices are trading slightly lower since open today. The sharp recovery in base metals, especially Copper is surprising given the increasing number of covid-19 cases globally (slowing economy, lower demand) and has possibly reached its saturation point in the short term. The recent rally in Copper was largely due to fears of a supply disruption in Peru and Chile which is warranted but, on the flip-side, the general lack of demand should be more worrying for prices in the short term. Last week’s price action indicates a temporary top in place for Copper prices and we may see a short term correction going ahead – Copper futures, traded on LME, may decline to $6275 and possibly lower over the next few trading sessions whereas on the upside, a break above resistance $6600 is likely to push prices higher to 2018 highs over the next few weeks. MCX Nickel is facing a strong support zone at 995-990 below which prices are expected to fall further in the short term. The rest of the metals are likely to follow Copper prices this week.

Oil prices are down over a percent this morning as WTI continues to zigzag around psychological support at $40.0 with near month futures at $40.10 and Brent Oil at $42.78 currently. Natural Gas futures are also lower at $1.704, down 0.80% currently. Oil prices continue to remain under pressure as the number of COVID-19 cases around the world is closing in on 14.5 million and more than 600,000 have died which may further force lock-downs globally and in turn affect oil prices in the short term. While US oil production has settled at 11 mbpd, the drop in the number of rigs also seems to have halted which is limiting the current upside in prices. The number of rigs drilling crude oil decreased by one to 180 rigs, the lowest since 2009. The focus now will be on OPEC member countries with the official views proposed by the OPEC+ JMMC last week were looked at as a positive sign as existing production cuts are being relaxed in August as a result of higher expected demand. The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, have been cutting output since May by 9.7 million barrels per day (bpd), or 10% of global supply, after the virus destroyed a third of global demand. After July, the record cuts are due to taper to 7.7 million bpd until December. The recovery of demand is highly debatable as the number of covid-19 cases continue to spiral higher and will eventually hit demand as lock-downs and restrictions are enforced. The likely scenario in case of an increase in production, without adequate recovery in demand, would force oil prices to the lower $30 range in the short term. We continue to remain neutral on oil prices at the moment – WTI prices are seen consolidating in the range of $39.0-$41.0 and directional movement is not expected until we have a breakout from the current zone.


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