Oil stabilizes after slide, gold rises

Oil steadies after steep falls

Oil prices are rebounding following steep declines in the previous session. Oil prices tumbled more than 3% on Tuesday as OPEC+ talks collapsed, and the market feared that producers could switch on the supply taps to gain market share.

Tense talks between the world’s major oil suppliers were abolished on Monday after the group failed to agree on the rate at which to ease supply curbs that have been in place across the pandemic. While the group agreed to an increase of two million barrels per day, the United Arab Emirates dissented.

The latest developments have certainly clouded the policy outlook for the OPEC+ group. However, leaders in Riyadh and Abu Dhabi are unlikely to let the disagreement escalate to the levels of the price war seen with Russia in April last year.

Later today, API inventory data will be released. Inventories have fallen for the last six weeks, sometimes by significantly more than forecast. Rising demand as economies re-open combined with limited OPEC supply is draining inventories. A larger-than-expected draw could see oil prices propelled higher again.

Gold retakes USD1800

Gold is on the rise for the sixth straight session. The precious metal rose to a three-week high of USD1815 in the previous session before closing below USD1800. Falling treasury bonds supported gold, even as the US dollar climbed higher. The benchmark 10-year treasury yield fell to 1.35%, a four-month low in the previous session. Today, yields remain depressed and the US dollar is treading water, boosting demand for gold.

All eyes will now turn to the FOMC minutes, which could have a slightly more hawkish bias reflecting the Fed’s shift in the June meeting. That said, the minutes are now out of date. The tick higher in US unemployment combined with weaker-than-forecast ISM services data are easing concerns that the Fed will accelerate a move towards tightening monetary policy and is therefore supportive of more upside for gold.

A close above USD1800 is needed to confirm the bullish reversal.

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