Oil settles in lower range and further declines may prove challenging
Oil prices are marginally higher on Tuesday but remain below the December to March range. The risks remain tilted to the downside amid a sluggish recovery in China, uncertainty around the US economy and banking system, and the impact of much higher interest rates on demand.
The primary bullish case for oil prices comes from OPEC+ and the prospect of another output cut in a couple of weeks but even that has been downplayed. Perhaps Brent has simply consolidated for now in a $70-$80 range, with a move below here potentially difficult as the US seeks to refill the SPR at these levels, while OPEC+ wouldn’t hesitate to pull the trigger if prices slipped too far.
Gold buoyed by debt ceiling drama
Gold is a little lower on the day but remains above $2,000 as traders appear reluctant to concede on hopes of record highs. The yellow metal came within a whisker of record highs earlier this month and could take another run at it, depending on how things unfold over the coming weeks.
Debt ceiling drama could be supporting gold and preventing a deeper correction. I think everyone is extremely confident that a default will not happen but the closer we get to the deadline, the more we’ll see those risks being priced into the markets which could support gold.
Beyond that, it’s all about interest rates and whether we can get more evidence of inflation abating and the labour market becoming less tight. That will justify a pause next month and, if we see significant progress on that front, start the conversation around when easing will begin.
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