Oil outlook appears bright
Crude prices appear to be on a one-way street that is headed higher. With risk appetite running wild, WTI crude is getting pumped higher as energy traders fixate over how long this energy market can remain this tight. Also adding to the supply issues is the shortage BP is having with truck drivers in the UK. The oil market is tight and any additional catalyst to that can easily help send crude prices much higher.
Evergrande still remains the biggest risk event on the table. The news flow for China’s second-largest real estate developer has been fluid. Media reports stated that Evergrande may have a path to restructure. Then we heard that Evergrande was told not to default. Lastly, it seems China is considering not bailing Evergrande out and wants local governments to prepare for the worse case outcome. If Evergrande fails, the blow to global risk appetite may not be extensive. The reason is that the Chinese government can be expected to take whatever measures are needed to contain the damage.
Given the current oil market fundamentals on both the supply and demand side, WTI crude seems poised to make a run towards the USD 80 level before the end of the year.
And just like this gold lost its mojo. With risk appetite roaring back and as Treasury yields surge, gold appears to be once again in freefall. Safe-haven trades were quickly unwound after China told local governments to prepare for the potential downfall of China Evergrande Group. Contagion fears are not completely erased but it seems markets are not fearing a systemic risk here and that is bad news for bullion.
Gold looks like it could struggle here and might be poised to fall back towards the USD 1700 level.
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