Oil dips on inventories, gold vulnerable

Oil dips after huge crude increase

Crude prices initially sold off after US weekly crude stockpiles surged by the most since 1982.  The deep freeze made inventories rise by 21.56-million barrels, much higher than the 1.285-million barrels prior reading.  This was the biggest percentage increase since 1982 and the most on record.

Gasoline and Distillates posted huge draws as refineries struggled to return to normal.  We could be in store for a few more weeks of draws for crude stockpiles.

WTI crude seems like it just wants to head higher, but some exhaustion should occur as OPEC+ brings back more production and as shale companies are willing to commit to drilling new wells.

Gold

Gold prices are once again trading in sync with the bond market.  If today continues to extend this bond market selloff, gold could see some more short-term pain.  Softer US economic data did not trigger any safe-haven flows nor did not diminish any outlooks for US growth in 2021. The ADP Employment report disappointed with a weak gain of 117 thousand, down from 174 thousand beforehand. This was well off the street consensus of 203 thousand and raises concerns that the nonfarm payroll report on Friday could also fall shy of the forecast of 185 thousand.

The Fed is slowly losing control of the Treasury curve and they will likely need to signal they will be concerned if yields continue to rise.  The Fed’s dovish commitment will be reaffirmed by Powell and we should finally hear some concerns about rate volatility.

Gold has found itself under strong downward pressure, but the pressure should see some exhaustion ahead of tomorrow’s speech from Fed Chair Powell.  The USD1700 level has been defended by gold bulls, but if the 10-year Treasury breaks above 1.50%, gold could test the USD1,685 level. The 10-year bonds showed some unexpected strength last week, rising to a one-year high of 1.6%, However, 10-year yields have dropped lower and stabilised below 1.50%.

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya