Oil to remain in deficit, gold above USD 1800

Tight oil markets sends crude prices higher

Crude prices are climbing higher as traders continue to believe that the short-term delta variant jitters won’t change this market away from a deficit anytime soon.  Even as German Chancellor Merkel raises concerns over the Delta variant spread across Europe, improving vaccination rates imply hospitalization rates won’t threaten their healthcare system.  The oil market will remain tight and prices will accelerate higher once the trend of new curbs or restrictions starts to ease across Southeast Asia, Australia, and Europe.

According to Baker Hughes, US shale drilling appears poised to decline for the rest of the year and that should keep OPEC+ content in gradually raising output.

WTI crude appears poised to consolidate between the USD 70 and USD 75 level in the short-term.

Gold

Gold prices are slightly higher as Treasury yields drop following a higher-than-expected jobless claims reading. The weak release did not unnerve investors as seasonal adjustment factors may have played into the big miss.  Many are attributing the soft reading to adjustments in the auto industry and as some states have returned to stricter COVID restrictions.

Gold continues to remain stuck around the USD 1,800 level and that will probably remain the case until after next week’s FOMC meeting.  The debate over tapering will intensify and enough clues will be given to let this market know if the Jackson Hole Symposium in August is in play.  Economists’ expectations are all over the place on when the Fed will make the taper announcement and what will be the pace.

Recent softness in some of the labor market readings and mixed signals on pricing pressures could help the Fed err on the side of caution and punt this meeting.  Any dovishness from the Fed will be the fuel to help gold rally towards and potentially break above the USD 1,850 level.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya