Crude dips on supply outlook, gold steady

Oil falls on output expectations

Crude prices softened as energy traders anticipate more output from OPEC+ and as Gulf of Mexico producers began resuming service.  A wave of disappointing economic data from the world’s two largest economies is not doing any favors for the short-term crude demand outlook.

There is good reason to be optimistic for crude demand across Europe now that 70% of adults in the EU are fully vaccinated.  Crude demand across the US will likely soften as peak driving season ends and over delay on returning to the office and resuming normal business air travel.

WTI crude will hover around the 68 dollar level until the OPEC+ meeting is concluded.  Energy traders are counting on seeing further declines with US stockpiles and for the OPEC+ group to stay the course with their gradual output increases.  Hurricane Ida might dampen demand prospects, but the disruption in US production should allow OPEC+ to restore more output.  The oil market is still in deficit and will probably stay that way for several months.

Gold

Gold prices are all over the place as investors grapple with weakening economic data globally (thank you Canada, China and the US) and potentially less stimulus from the eurozone after some hawkish ECB comments that could suggest a quicker exit from crisis mode.  Inflationary pressures are not easing and that is why global bond yields are rising, thus taking away some of the demand for bullion.

Gold traders might begin to anticipate a greater impact from the delta variant with the US consumer and possibly a less hot labor market.  Gold has been unable to recover the losses that stemmed from the June FOMC policy decision that showed policymakers saw two rate hikes by the end of 2023.  Gold should not be struggling to recapture the USD 1850 level given Fed Chair Powell’s dovish tapering message last week, softer PMI data from China, and plunging US consumer confidence.  If gold does not rally here, it could get ugly pretty quickly.  At some point, gold needs to act like an inflationary hedge, but right now pricing pressures are likely to trigger less accommodation from central banks, essentially dampening demand for bullion.

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