India’s Covid woes could weigh on oil
Oil is rebounding on Tuesday, clawing back some losses from the previous session. However, gains are likely to remain capped as the Covid crisis in India continues.
India is seeing lockdown restriction extended as Covid cases remain above 300,000 per day. Mobility restrictions in the world’s third-largest importer of oil are weighing on the demand outlook for oil.
The deteriorating near-term outlook for oil comes ahead of the OPEC+ meeting tomorrow, where the group will discuss production policy. The big question here is whether OPEC+ will go ahead with the planned easing of production cuts.
On the one hand, OPEC+ recently upwardly revised its demand outlook for oil this year and is expected to maintain this outlook, given most of the growth is expected in the second half of the year.
On the other hand, the OPEC technical committee acknowledged potential demand concerns brought by the deteriorating picture in India yesterday. Are these concerns big enough to push back the easing of production cuts? Potentially, yes. If OPEC+ hold back on output adjustments, we could see oil prices tick higher.
Gold looks to the Fed and Biden
The stronger US dollar and rising treasury yields are taking the shine off gold. The precious metal is edging lower, giving back some of its gains from the previous session. Although trade remains muted ahead of this week’s two key risk events – the FOMC rate decision and Biden’s first address to Congress since taking office on 6 January 2021.
Jerome Powell is not expected to rock the boat either regarding interest rate expectations or by focusing too heavily on the recent rise in yields. Investors will be listening closely for hints regarding the recovery in employment or any rise in inflation. A more upbeat-sounding Fed could see the precious metal ease lower.