Oil prices recover on EIA inventory report
Crude prices pared earlier losses after energy traders viewed the EIA crude oil inventory report as mostly bullish given improving diesel and gasoline demand. Initially, WTI crude slumped on the surprise small build with US stockpiles, but that was short-lived. Crude oil inventories rose 594,000 bpd versus a forecast of a 3.26 million decline, snapping a streak of 3 weeks of draws.
US crude production remained steady at 11 million barrels a day and that is somewhat surprising given the recent increases in rig counts. With OPEC+ poised to ramp up production, concerns could be percolating that we might not be ready for more output.
The crude demand recovery is losing momentum and that won’t get better anytime soon especially since international travel seems far away from returning. Despite tremendous upside demand potential in the US, virus concerns across Asia and emerging markets are constant drags for the outlook and will likely keep oil prices stuck in a range.
Gold bulls are back as safe-haven flows return on concerns COVID concerns, growing risks to the outlook, and as Treasury yields appear to be somewhat anchored. The virus spread across Asia (India and Japan) is weighing on sentiment. Even in the US, calls for caution are growing for US equities as some analysts are eyeing a potential 10% pullback.
Gold’s outlook is becoming very bullish as too many risks are percolating globally. Market positioning across equities and fixed income could lead to massive inflows for bullion. Gold’s next barrier is the USD1,800 level; once prices capture that level, momentum traders could ride this wave towards the USD1850 level.
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