Oil softens, gold steady

Oil dips below USD 70

Crude prices did not get a boost from a mixed weekly EIA crude oil inventory report.  The headline draw of 5.2 million barrels, greater than the expected decline of 2.9 million barrels, but everyone seemed to focus on the surprising massive builds with gasoline and distillate inventories.  The beginning of the peak summer driving season disappointed, but that maybe was more of a reflection of a cool and partly rainy Memorial Day weekend over the Midwest and Northeast.

Refiners are pumping out a lot of fuel, operating at 91.3% of their operable capacity.  The pickup in crude demand has been solid over the past month, but this week showed a little dip.  Gasoline demand is strong as it hovers near the five-year average on a seasonal basis.  The demand outlook still looks amazing and gasoline inventories should start to come down quickly after school ends.

WTI crude is back below the USD70 level and will likely consolidate here until the trajectory of the dollar becomes apparent.  Crude prices will closely follow tomorrow’s inflation report, since it is the main event of the week and could determine if dollar weakness momentum returns.

Gold looking for direction

It is fascinating that gold is not doing much of anything as bond yields plummet.  The bond market has made up its mind that inflation will be transitory, but the gold market has not.  The 10-year Treasury yield is 4.4 basis points lower at 1.489%, extending declines after investors showed robust demand for the 10-year Treasury auction.  Gold should continue to consolidate leading up to the US inflation report on Thursday.  If pricing pressures come in hotter-than-expected, gold might experience a knee-jerk selling that will completely get bought into.  Gold’s bullish outlook remains intact and could accelerate if prices settle above USD1,920 by the end of the week.

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