Oil edges higher but lacks momentum
Oil prices are edging higher on Tuesday, although momentum has slowed notably from the previous weeks. Oil prices struck a fresh two-year top at the start of the week before closing marginally lower. Rising US oil production combined with Britain delaying the final stage of re-opening dampened optimism surrounding stronger demand and tighter supply.
The dip lower was short-lived, and oil prices are once again on the rise. The EIA now sees demand returning to pre-pandemic levels by the end of 2022, sooner than anticipated. The EIA also urged OPEC+ to increase supply in order to meet demand.
The principal headwind for the oil market right now is the revival of the 2015 Iran nuclear deal, which could see US sanctions on Iran’s oil exports lifted. However, slow progress in talks points to this being a slow burner.
Technically the rally in oil is looking slightly overdone. WTI crude is in overbought territory, so consolidation or a pull-back in the price could well be on the cards before any further moves higher.
Gold extends losses
Gold is heading lower for a fourth straight session and trades around a 4-month low even as bond yields continue to fall. The upbeat mood in the market with equities hitting record highs is dampening demand for the safe-haven yellow metal.
Bond yields fell steeply across the previous week. This was a surprise move given that CPI came in at 5% – a 12-year high. However, investors saw enough evidence of short-term rises in inflation in the data to support the Fed’s belief that inflation was transitory.
All eyes are now on the FOMC meeting, which started today. Expectations are that the Fed will sound more upbeat about the outlook for the US economy but refrain from talking about reining in support.
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