Oil declines, Powell lifts gold

Oil – Oil slides as OPEC could increase supply

Oil prices are trading lower on Thursday, extending losses from the previous session. Rising fuel stocks coupled with concerns of a supply increase flooding the market and worries over demand are hammering oil prices lower.

Both benchmarks declined on Wednesday following reports that Saudi Arabia and the United Arab Emirates had reached a compromise, which is expected to pave the way for an agreement on production increases across the second half of the year.

The prospect of increasing oil supply at a time when Covid cases are on the rise again is unnerving the market.

Data revealed that crude stockpiles fell for an eighth straight week last week. However, gasoline and diesel inventories rose. The market has looked through the large drawdown in crude inventories and is focusing on the first rise in fuel stocks since early June. The fact that fuel demand has eased as Covid cases rise is an unsettling correlation.

Gold shines

Gold is on the rise for the third straight session. The precious metal is building on 1% gains from Wednesday as the fundamental picture improves. Inflation is surging. Both consumer and producer price inflation continue to hit multi-year highs, yet the Fed remains firm in its position that the spike in inflation is temporary and no tightening in monetary policy is required yet. Gold is considered a hedge against inflation, so rising inflation often boosts demand for the yellow metal, while the Fed sitting on their hands is a win-win for gold.

Federal Chair Powell is due to speak again before Congress today. However, he is not expected to materially deviate from yesterday’s dovish message that the US economic recovery still has a way to go before the Fed tightens monetary policy. The fundamentals picture is now unlikely to change substantially until the next key inflation print due on 30 July. This means that gold could well run higher until then.

Technically the picture for gold has brightened as the precious metal pushed back over its 200-day moving average.

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Sophie Griffiths
Sophie Griffiths is a market analyst with OANDA, focusing on the UK and Europe. With almost 15 years of experience, she brings with her a deep-seated understanding of the financial markets, providing timely and relevant fundamental analysis across a broad range of asset classes.
Sophie Griffiths

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