Bullish EIA inventory report, gold lower on rising yields, Powell extends dollar decline

Oil

Crude prices are surging from a very bullish EIA crude oil inventory report and as dollar weakness returns.  Despite recent concerns over both the AstraZeneca and J&J COVID vaccines, the crude demand outlook is starting to improve as some European countries are heading in the right direction for reopening up:  Switzerland will open theaters and outdoor dining, Denmark will slowly reopen their borders next month, and France appears poised to reopen bars and restaurants next month.

After seeing the EIA crude oil inventory report, OPEC+ members must be very pleased with their gradual output increase strategy.  The weekly EIA crude oil inventory numbers showed US stockpiles continue to decline.  The headline draw of 5.8 million bpd was greater than the -2.58 million consensus estimate and prior decline of 3.52 million bpd.  Stockpiles now are at the lowest level since February, with East Coast inventories plunging to the lowest in 30 years.  Oil demand surged and crude production only recovered half of last week’s 200,000 bpd drop.

Exports softened back below 3 million bpd and imports were weak as imports from Saudi Arabia fell to their lowest level since February.

It was a very bullish oil inventory report and that should keep prices supported for the rest of the week.

Gold/FX/Powell

Gold is softer as global bond yields rally ahead of a wrath of economic data that could suggest the US economy is starting to fire on all cylinders.  Retails sales are about to bounce back strongly following another round of stimulus checks and easing of restrictive measures.

Gold has been unable to break its tight consolidation range and that his have many bulls tentatively throwing in the towel.  Bearish calls are growing for the precious metal, but that would require everything to go right for the economy.  The path higher is still there for gold, especially since the Fed has signaled what it would take for them to even start talking about removing accommodation.

At the Economic Club of Washington, Fed Chair Powell reminded investors that the ultra-accommodative stance won’t change anytime soon.  Powell delivered optimistic comments the growth and job creations, while remaining concerned over the spread of the virus with potentially hard-to-treat strains.

The dollar extended declines after Powell noted that unemployment can go low without triggering inflation.  Powell didn’t really say anything new but just affirmed the view that they are nowhere near close to discussing rate liftoff and that will make Wall Street eventually push back their forecasts for rate increases to sometime in 2023.  Powell’s comments about the pandemic bringing on structural changes with more automation will make the last couple million jobs needed to reach their employment target a lot harder to achieve.

Gold pared some losses but still down on the day as Powell did little to reverse the earlier rally in Treasury yields.

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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