Oil eases but OPEC+ could strike at any point
Oil prices are continuing to pare post-OPEC+ gains ahead of the Fed meeting. Ongoing reports of omicron-driven restrictions, combined with disappointing data from China which casts doubt over its growth potential are weighing on crude prices as we head into a highly uncertain period for the global economy.
The IEA also reported that the oil market has returned to surplus and that inventories will swell early next year, with first-quarter demand seen dropping by 600,000 barrels per day. It’s hard not to see this as a political victory for Joe Biden and the Democrats ahead of the midterms, given the timing of their coordinated SPR release. He’ll end up getting a lot of credit, despite the bulk of the price decline being omicron-related.
That said, it just takes OPEC+ to follow through on the immediate adjustment threat for prices to rise once again which will keep oil sellers on edge. This may limit the downside for now, although markets do like to eventually test the resolve of these warnings eventually.
Gold vulnerable to hawkish Fed
Gold is relatively flat on the day ahead of the all-important Fed decision. The yellow metal has been range-bound for weeks as every other asset class has whipsawed all over the place, while traders get to grips with the new variant. The Fed will have a huge role to play in how gold trades into year-end, starting today.
The central bank can’t afford to be complacent and isn’t expected to be. A policy mistake on that front could be bullish for gold as investors will be forced to factor in higher inflation which certainly improves to appeal of the yellow metal. If policymakers accelerate tapering, as expected, and price in two or three hikes for next year, we could see gold really test the lows of the last couple of months.
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