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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