Oil takes a breather, gold eye 1800 level

Oil pauses for breath

Oil is edging lower after hitting its highest level since mid-March on Wednesday amid a sharp drawdown in US crude stockpiles and optimism surrounding Western economic reopening. Surging Covid cases in India continue to cap the upside.

US crude inventories fell by a massive 8 million barrels, well ahead of the 2.2 million barrels expected. The data from the EIA also revealed that exports and refining output were also at the highest levels since March last year.

The EIA data came following the API read, so it was to a degree expected. Even so, it confirms that oil demand is not only back but also gaining momentum. As lockdown restrictions continue to ease in the US and Europe, oil demand is expected to keep rising. Jet fuel demand, which has been extremely depressed through the pandemic, is expected to rise firmly this quarter as travel restrictions are eased.

However, Covid infections are still rising in India and Japan. The oil markets will want to see a corner turned in these countries to put fresh legs on the rally.

Gold looks to 1800 on USD weakness

Gold is on the rise, extending gains for a second straight session thanks to a weaker US dollar and softer Treasury yields. Despite improving economic conditions, the continual reiteration of the Fed’s dovish stance is helping the precious metal to shine. The key USD1800 level is there for the taking.

US treasury yields slipped below the closely-watched 1.60% level and hovered around a one week low – good news for non-yielding gold.

Attention will now shift to tomorrow’s non-farm payroll release. The data could provide further clues about when the Fed will scale back its stimulus, which will determine gold’s next move.

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Sophie Griffiths
Sophie Griffiths is a market analyst with OANDA, focusing on the UK and Europe. With almost 15 years of experience, she brings with her a deep-seated understanding of the financial markets, providing timely and relevant fundamental analysis across a broad range of asset classes.