Oil extends gains, gold edges higher

Oil looks to OPEC+

Oil prices are continuing to push higher, extending gains into a seventh straight week as the market awaits the outcome of crucial talks by OPEC+. The group failed to reach an agreement over raising oil supplies last week. The group was in favour of increasing supply by two million barrels per day from August to December in an attempt to balance out surging demand. However, the United Arab Emirates dissented, resulting in nothing being agreed.

Talks will continue today, and expectations are for supply curbs to be eased by 400k barrels per day. This is below the minimum expectation of the market going into the meeting and is also insufficient to rebalance the tight conditions in the oil market presently.

Demand outlook remains robust as economies reopen after Covid. Inventories have seen larger-than-expected draws over the past six weeks. Should the 400,000-output increase be agreed upon, oil prices could well quickly move to USD80 per barrel.

As oil prices keep rising, attention will shift towards US production as the higher prices once again make it economically viable for US shale producers to ramp up. The latest Baker Hughes rig count revealed that US energy companies increased oil and natural gas rigs for a third straight week.

Gold struggles at 100 DMA

Gold is edging higher, building on small gains from last week. The safe-haven precious metal is benefitting from souring risk appetite amid rising Delta Covid cases and weaker-than-expected Chinese Caixin services PMI. Investors are also reassessing the Fed’s hawkish moves in the wake of Friday’s closely-watched jobs report.

The US non-farm payroll data prompted a sharp fall in the US dollar, bringing it off its recent two-month high. While 850k jobs were created in June, a better-than-forecast figure, unemployment ticked higher, prompting speculation that the labour market recovery isn’t strong enough to encourage an earlier move by the Fed.

Despite setting off this week on the front foot, gold is struggling to push beyond key resistance at USD1790, the 100-day moving average. Investors are looking ahead to the release of the minutes from the latest FOMC meeting, which should shed more light on the Federal Reserve’s next steps.

For a look at all of today’s economic events, please check out our economic calendar at www.marketpulse.com/economic-events/

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