Oil dips after EIA, gold range-bound

Oil falls as EIA downgrades demand forecasts

Oil prices are easing on Wednesday after enjoying a strong first half of the week. Sentiment has softened as we move towards the end of the week following a period of relief as data suggested omicron symptoms are less severe than feared. Unfortunately, the latest data suggests it’s far more transmissible though which could still pose a threat.

So much so that countries are exploring new restrictions with the UK government announcing the time has come for “plan B”. These light-touch restrictions are aimed at slowing the spread as booster shots are administered but more significant measures may be warranted, given how fast the new variant is spreading.

The EIA alluded to this when releasing their new forecasts which they acknowledged are subject to “significant revisions” due to the level of uncertainty. Still, the group revised down demand forecasts for this year and next, bringing the market back into balance in the first quarter and seeing Brent average USD 73 per barrel, then USD 70 for the full year. Opinions on this naturally vary drastically and, as the group said, it’s likely those forecasts will change repeatedly and significantly over the course of the next year.

Gold eases but remains range-bound

Gold prices are a little lower again on Thursday, although broadly speaking the yellow metal remains range-bound ahead of next week’s Fed meeting. It’s been mostly between USD 1,760 and USD 1,810 for the last couple of weeks, with gold one of the few instruments not subject to immense volatility throughout the omicron panic.

One explanation for this may be the uncertainty born not just by the new variant but also the inflation outlook. Once upon a time, it was easy to predict what central banks would do when faced with economic turbulence. That’s because policymakers weren’t also dealing with inflation running at double or triple their targets and on an upward trajectory.

We should learn a lot over the next week, with US inflation data due tomorrow and then the Fed decision next Wednesday. A day later we’ll hear from the ECB, BoE and SNB so we may have a much better grasp of how policymakers could respond if tough restrictions are reimposed. Until then, gold may remain stuck in this range.

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