Oil struggles over OPEC+, gold slides

Oil slides as OPEC+ debates production cut extension

Oil prices are sliding as energy traders anticipate OPEC+ will only slightly delay oil output hikes by a month or two.  Before the weekend’s meeting, the consensus was for a three-month extension of production cuts, but the UAE and possibly Iraq oppose delaying the output hike.  OPEC+ is not happy with the resurgence of US production and will likely settle on an agreement of only a one- or two-months extension of oil production cuts.  Committing to a three-month extension would provide a bone to US shale producers and allow them a chance at grabbing market share.

WTI crude is softer for a second consecutive day but still comfortably above the USD44 level as COVID vaccine progress has investors pricing in a much stronger crude demand outlook for the second half of the year.

Also, important to note, the end of Hurricane season is here but history suggests we still could see some activity over the next month.  The tug-of-war between the short-term demand outlook with rising expectations for 2021 to deliver the return of pre-pandemic life should keep WTI crude around the mid-USD40s for now.

Crude prices returned towards the session lows after reports that Saudi Arabia was considering resigning its role as co-chair of OPEC+.

Gold falls below USD1800

Gold is in a rough patch as investors are fleeing to other risky assets as the dollar slide resumes.  Gold demand is fleeing as many investors are also preferring to dabble with cryptocurrencies and buy industrial metals, such as copper.  Gold has temporarily lost safe-haven appeal and is no longer rallying when equities selloff, but that should change.  Today’s stock market weakness is most likely a month-end story and not the beginning of massive year-end profit-taking.

Gold will likely see strong support in mid-December as the stimulus trade will be boosted by the ECB and Fed.  Gold is vulnerable to a break of the USD1750 level, which could see momentum support a drop towards the USD1700 region.  Gold’s longer-term outlook is still bullish, but the short-term pain is having many abandon the trade for now.  Once the stimulus trajectory improves, gold should stabilize and target the USD1,850 level.

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