Oil outlook softens, gold stays above 1900

Oil outlook weakens

A deteriorating outlook for crude demand is preventing oil prices from following the post-election stock market rally.  The demand outlook might take a big hit if health experts are right that the coronavirus outbreak in the US will get so bad that 1,000 COVID-19 deaths per day will happen for a sustained period of time.

Energy traders are also trying to figure out how soon and how much extra oil will come out of Iran if a Biden administration rejoins the 2015 Iranian nuclear deal.  A million barrels per day could be free to leave Iran by the end of next year or early 2022, but by that point, hopefully large parts of the world should be returning to pre-pandemic behavior.

With no ‘blue wave’, Biden will struggle to push through his clean energy initiatives, likely resorting to executive actions to push environmental goals.  US production will not drop off significantly under Biden and that should somewhat have oversupply concerns linger until the northern hemisphere has the virus under control.

WTI crude seems destined to remain rangebound between USD35 and USD40 in the short-term.

Gold

Gold traders are quickly moving beyond post-election reality that they will not see a big fiscal stimulus package and focusing on central banks.  The congressional election races showed the stimulus stalemate over the last several weeks saw many Americans side with the Republicans and that should reinforce their fiscally conservative stance.  Despite all the election aftermath, the coronavirus outlook over the winter months will likely trigger further restrictive measures and see many state and local governments struggle for funding, thus forcing Congress to deliver some fiscal support before Inauguration Day.

As the US and European countries continue to fight COVID-19, lockdowns and strains to financial conditions will force the central banks to become much more accommodative.  Today, BOE acted swiftly alongside the government in delivering more support to businesses and households.  The Fed will likely telegraph that it will do more soon and the ECB is expected to boost their asset purchases in early December.

With the dollar rebound appearing to be over, gold has formed a solid base at USD1900 and seems poised to make a run here as a gloomy COVID-19 winter will see central banks open the stimulus floodgates.

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