Oil heads higher, gold up on US inflation

Oil rising once more after inventory data

Oil prices are rising again on Wednesday, after data from API a day earlier showed a larger drawdown in inventories, once again drawing focus to today’s report from EIA. A double whammy of the damaging impact of Hurricane Ida followed so quickly by Hurricane Nicholas slowly making its way across the region has weighed on activity in the Gulf which is also supporting prices.

With a couple more months to go of Hurricane season, prices may remain well supported. The flipside to that may be a slowdown in economic activity, with the Chinese data overnight highlighting the significant costs of outbreaks in the country. OPEC+ is planning to stay the course for now, after revising up its expectations for demand growth next year.

With WTI now firmly back above USD 70 and Brent closing in on its summer highs, we could see some profit-taking soon, although there aren’t yet many signs of this happening. The momentum indicators at worst are flattening off but we’re now seeing them slow just yet. Perhaps activity in the Gulf will see oil prices hit new summer highs but momentum will be key to the rally being sustained.

Gold pares gains after US inflation surprise

US inflation data on Tuesday gave gold the boost it needed after consolidating just below USD 1,800. It quickly ran into resistance though around USD 1,810 and already today it’s giving back some of these hard-fought gains. It seems the recent Fed speak is still echoing in the back of gold traders’ minds even as the data continues to justify further patience.

The message next week could be very different though, which feeds into the uncertainty we’re seeing in the yellow metal. It can be difficult to reconcile when the data and commentary don’t align but ultimately, you’d expect the latter to catch up if the trend continues. If it does, gold could really take off and USD 1,833 could come under real pressure.

Of course, against the backdrop of a debate over the stickiness of inflation, the message coming from the Fed may not change, rather the explanation to justify the moves. As mentioned earlier, this would be far more concerning and could weigh on sentiment in the months ahead.

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