Oil – the only way is up?
Oil prices are once again on the rise, building on 1% gains across the previous week, the fourth consecutive week of gains. Optimism surrounding a strong summer driving season combined with a pause in talks to revive the Iran nuclear deal is giving bulls the opportunity to drive prices higher.
Both oil benchmarks have rallied hard over the past four weeks as economies reopen and rebound following pandemic restrictions. Concerns over Iranian oil flooding back into the market have eased as talks pause amid presidential elections in Iran. The election of a hardline judge Ebrahim Raisi, who is already under US sanctions, could delay any nuclear deal being agreed upon.
The other potential headwind for oil is rising US oil output. The Baker Hughes rig count revealed an increase of eight last week to 373 rigs – the highest since April 2020. Oil trades well above the USD49 a barrel which most shale oil producers in the Permian Basin require to break even. Even so, OPEC officials believe that US oil production growth will remain limited this year despite prices rising. The higher the oil prices push, the more focus we could see on the Baker Hughes rig count numbers.
Gold stages a rebound as treasury yields fall
After six straight sessions of declines and its worst weekly performance in 15 months, gold is attempting a rebound. The Fed’s hawkish surprise last week sent treasury yields and the US dollar to a 2-month high, weighing on demand for the non-yielding US dollar-denominated precious metal.
As the new week kicks off, treasury yields have taken a turn southwards falling below 1.40% which has eased the pressure on gold, enabling it to push higher. Technically, the picture is bearish as gold trades below several key levels, including a descending trend line from August and its 200-day moving average.
The Fed’s next moves and inflation will remain key themes this week with Jerome Powell’s appearance before Congress tomorrow and PCE inflation data on Friday.
For a look at all of today’s economic events, please check out our economic calendar at www.marketpulse.com/economic-events/
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