Crude prices struggled in 2023. Although major production cuts were implemented by OPEC member countries, the USA has ramped up production, and concerns about global growth have emerged.
While economic growth and demand remain a headwind moving forward, the question is whether crude is trading at fair value or if it may be undervalued.
Inventories and Seasonality:
Recent crude inventories data from the EIA revealed a decrease of over -9.23 million barrels, compared to the expected draw of -2.15 million barrels. Demand is beginning to ramp up, and consumers tend to travel more as the winter season comes to an end. Middle East tensions are still elevated, adding another layer of uncertainty to the supply chain dynamics.
Technical Analysis:
Crude has tested the 67.50-70 range many times, and this area continues to be a major support. Recent price action displays a decisive break above the 50-day EMA. Prices are now attempting to test the 200-day EMA, a much more significant area of resistance. Breaking above this 200-day EMA, coupled with a Golden Cross, could be exactly what crude needs to find upside momentum and enter a bull market in 2024.
Silver is currently at an inflection point. The industrial/precious metal has held major support as of late, adding a layer of optimism to traders and investors alike. Moving forward, we will need to continue to hold this major support level to keep our optimism intact.
Headwinds:
This week will be an inflection point for the silver market. Not only are we hovering right above support, but the 50-day and 200-day EMAs have converged, adding a ‘wall’ of resistance that is imperative to break through.
Why is this week an inflection point? This week entails the release of many labor market data points, including JOLTs, ADP Nonfarm, NonFarm, The Unemployment Rate, and Average Hourly Earnings. The labor market has been extremely resilient despite economic growth concerns. If some of this data comes in weaker than expected, it is likely we would see a repricing of interest rate cut expectations, fueling the metal’s momentum to the upside.
Chinese Economic Rebound?
China is the largest consumer of silver globally. A rebound in the Chinese economy will be imperative. The PBOC has already taken drastic monetary accommodation measures by cutting interest rates. If conditions can stabilize, this will be a bullish tailwind for Silver. Silver is currently holding above support despite weakness in China. This is very encouraging to see, leading us to believe that the worst of the Chinese economy is already priced in.