Oil extends declines for a third straight day
Oil prices are heading lower for a third straight session amid ongoing uncertainty over supply across the second half of the year. Following the collapse of the OPEC+ talks, fear is gripping the oil markets, sending oil prices tumbling more than 6% in just three days. The overriding concern is that the current output agreement will be abandoned, and producers will ramp up production to boost market share.
While near-term demand is clearly outstripping supply, the markets are fretting that this will not be the case heading towards the end of the year should the OPEC+ agreement fall apart. Currently, OPEC is retaining supply by around six million barrels a day. The group was looking to lower this to four million. However, the United Arab Emirates dissented.
API data revealed that oil stockpiles in America declined by eight million barrels, far outstripping the eight million estimated, highlighting the extent to which increased demand and limited supply are draining inventories. EIA data later today is expected to reveal a similar pattern, falling for a seventh straight week.
Gold has certainly found its mojo after June’s steep decline, extending gains for a seventh straight session. As expectations of higher interest rates decline, along with treasury yields, non-yielding gold is firmly in demand.
Meanwhile, the risk-off mood in the market is adding to gold’s lure. Significantly, the precious metal closed above the key psychological level of USD1800 on Wednesday, paving the way for further gains. A move above yesterday’s high of USD1815 could open the door to fresh multiweek highs.
The FOMC meeting was highly anticipated but in the end, policymakers failed to provide the markets with any clarity about when the Fed might decide to taper its bond-buying program. With the Fed looking less hawkish than just a few weeks ago, gold bulls have reason to be optimistic.
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