The Saudis pulled it off again. They managed to keep both the Russians and Americans somewhat happy, while boosting production targets without triggering a collapse in oil prices. The oil market will still remain tight given the production boost is modest at best. Hikes for both July and August will be 50% higher at 648,000 bpd. The original plan of 430,000 bpd of output was not getting the job done and with China’s COVID situation and easing of lockdowns, it was easy to justify an increase at this meeting.
Crude prices rallied as the OPEC+ decision does little to change how tight this oil market remains. Also providing support for crude was a bullish EIA crude oil inventory report. The headline draw of 5.1 million bpd was larger-than-expected while demand for gasoline and distillates surged.
With hurricane season now here, it is hard to imagine anyone becoming overly aggressive with a call for a major pullback with oil prices. WTI crude seems like it will continue to head higher as inventories will remain low, US production remains stuck at 11.9 million bpd, and after the US extended its streak of exports to a 12th straight week.
Gold is close to breaking out here as investors scramble for safe-havens as relentless inflation fears drive economic growth slowdown calls. A tremendous amount of uncertainty remains with how surging energy costs will drive the inflation theme and whether that will force the Fed to continue hiking rates by half-point in September.
Also providing a boost for bullion was Microsoft’s outlook warning, which shows even the mega-cap stocks still have a rough road ahead. If gold can close above USD 1880, that might trigger a wave of technical buying that sends prices towards the USD 1930 area.
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