Oil rallies on SPR clarification, gold awaits NFP

Oil

Crude prices rallied after the Department of Energy spokesperson said the energy agency had no plans to tap the Strategic Petroleum Reserves (SPR).  Yesterday, WTI tumbled after the Energy Secretary Granholm reminded energy traders that ‘all tools are on the table’ given the brewing energy crisis.  Energy traders initially thought that perhaps the Biden administration was panicking and wanted to tap the SPR a lot sooner than warranted.  It would be more appropriate for the Biden administration to signal they are getting ready to tap the SPR if it seems likely we are facing a cold winter and WTI is approaching the USD 90 level.

The oil market is still heavily in deficit and that will likely be the story over the winter.  If the north has a cold winter, the prospects of USD 90 oil seem very likely.  The energy market is still processing what will be the impact of extra gas from Russia to Europe and if the US tapped the SPR.  The verdict still seems like it will be higher oil prices given the market’s structural deficits.

WTI crude may need a fresh catalyst to break above the USD 80 level and that could come tomorrow morning if the labor market recovery shows the economy is heating up again.

Gold eyes nonfarm payroll report

Gold prices are stuck in wait-and-see mode over what will happen to real yields after the nonfarm payroll report.  Gold has struggled as both a safe-haven trade and inflation hedge and that might stay the case until the Fed officially starts tapering its asset purchases.  Over the next 24 hours, gold may consolidate between USD 1725 and USD 1775, but the risks are still to the downside.

What is complicating gold’s short-term outlook is all the noise over the debt ceiling and higher energy cost impact for the economy, which are marginal at best.  The risks are low of the US defaulting on its debt and the impact of USD 90 oil is not the same as it was 40 years ago.

Gold prices may need one last plunge before long-term investors pile back in.  The USD 1,700 level may prove to be massive support.

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