Oil pares gains as traders question OPEC+ unity
The Saudis got their output cut after intense negotiations over the weekend; the only downside being that no one else opted to be a part of it until the start of 2024. It became clear last week that Saudi Arabia was going to be pushing for a cut at the weekend meeting and that getting others on board may prove difficult. As it turns out, the compromise that was struck in the spirit of unity and cooperation looks far from convincing.
The deal appears to comprise three components, technical tweaks that make little difference to actual output, a Saudi cut of one million barrels per day, and an unusual commitment to reduce production seven months down the line. In other words, it’s a unilateral move from Saudi Arabia dressed up as an OPEC+ cut.
Which begs the question, how unified is the alliance at this point, with Saudi Arabia seemingly more price obsessed than others? Today its energy minister has reportedly claimed to be “fed up” with other members not meeting output goals when speaking to Al Arabiya in another sign of some division within the group.
Markets may see this as a sign of weakness within OPEC+ and a lack of willingness to restrict supply further which could potentially see the price come under pressure. Crude is a little higher today but has given back the bulk of the gains from earlier in the session and is still below the range it traded in prior to the SVB crisis.
Gold recovers after NFP hit
Gold is recovering at the start of the week after suffering in the aftermath of Friday’s US jobs report. The headline NFP number was a big blow and clearly, one that was difficult to shrug off. There were other aspects of the report that were more promising from the rise in the unemployment rate to the slight dip in annual earnings and higher-than-expected participation. Even so, such strong job creation is tough to ignore.
As today’s rebound highlights though, the key takeaway from the jobs report is that we’re none-the-wiser. There was something there for everyone and the Fed won’t feel better informed on the state of the labour market in the aftermath of the report. While markets are pricing in a slightly greater chance of a pause than another hike, this fact surely works more in favour of the hawks than the doves as we’re yet to see signs of any significant progress.
So much now hangs on the inflation report the day before the Fed meets. If the Fed is to pause, we need to see something promising in that report or it may be easier for policymakers to hike once more and hope for better data over the following few months. This uncertainty could lead to a lot of volatility in gold in the short term.
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