Oil rallies on tight supplies
Oil rallied after a surprise crude draw reinforced how tight the oil market remains. Crude prices have too many catalysts that support a move to USD 100 oil in the near future: Geopolitical tensions across Europe and the Middle East should remain wildcards for oil, crude demand continues to improve as large parts of the world return to normal travel behavior, and as OPEC and non-OPEC output gradually increases.
The weekly EIA crude oil inventory report showed stockpiles fell by 4.76 million barrels, a big surprise as analysts were expecting a 1.27M million bpd build. Gasoline demand impressed but some of that could be attributed to Americans filling up their tanks before an arctic blast hit large parts of the country. Regardless of how we got there, oil inventories are too low, dropping to the weakest levels since October 2018.
The oil market is too tight, and a two-day slide might be all that we see. The outlook for consumption continues to improve domestically and across Europe, which means that WTI crude might not have much resistance getting to the USD 95 region this month.
Gold prices continue to consolidate ahead of a pivotal inflation report that should tilt market expectations into either pricing anywhere between four to six Fed rate hikes this year. Gold tentatively pushed higher following the drop in global bond yields but was unable to break above the upper boundaries of its broadening trading range.
Geopolitical risks will continue to provide some support for gold as an immediate de-escalation with the Ukraine situation seems unlikely and so does a revival of the Iran nuclear deal. The gold market is divided on what will be the next move and that should be good news for patient bulls. Aggressive easing still seems the least less likely path for the Fed and if some of the more hawkish expectations come down, gold continue to rise.
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