Oil reverses course on port closures
News of the port closure has been a drag on oil prices, with crude turning south yesterday just as it was heading for a third day of gains.
WTI and Brent had rebounded off their lows around $65 and $67, respectively earlier this week and appeared to have established firm support in the area.
But the prospect of further strict shutdowns in China at the slightest hint of a breakout will have implications for growth in the worlds second largest economy and largest importer in the near-term.
The outbreak in China, irrespective of how small the numbers currently appear, is a key catalyst behind crude prices tumbling from their highs again.
Should we see more evidence of these kinds of strict measures being imposed, we could see that support come under significant pressure.
We’ve already seen the IEA revise down its expectations for the remaining months of the year as a result of delta. Further downward revisions will follow if it doesn’t come under control.
Can gold see temporary support?
Gold moved back into the $1,740-1,760 range early on in the US session on Thursday and it has traded here since.
This falls around that previous barrier of support, the break of which triggered the flash crash at the start of the week. If it can break above here, it would be quite the turnaround but I’m not convinced it would be sustainable.
We have seen the dollar pull back slightly since the US inflation data release earlier this week and US yields have steadied, but this is more a reflection of some profit taking than anything else.
The Fed is likely to make a tapering announcement in September and the Jackson Hole event in a couple of weeks could be the platform to lay the groundwork.
Perhaps we could see some profit taking ahead of the event, especially given the relative light news flow that’s expected. US data will provide points of interest, as will Fed commentary, but some profit taking could benefit gold in the short term. But I’d be surprised to see any significant gains ahead of the event.
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