Oil awaits OPEC+ decision, gold little changed

Oil dips as OPEC+ dithers

Crude prices are slightly softer as the latest OPEC+ saga unfolds, with many expecting them to deliver a delay to its output hike.  Complicating negotiations is the recent rise of US production.  OPEC+ does not want to give the US a head start in ramping up production.  The EIA crude oil inventory report showed US production rose by 100,000 barrels and that could continue to trend higher as more rigs have been coming back.

The short-term outlook is also a headwind for oil prices as the US struggles to get the COVID situation under control.  The death toll in the US rose to a daily record of 2,638.  The CDC director noted earlier that the US could see 450,000 deaths if Americans don’t take all precautions.  The crude demand outlook could see extended lockdowns over the next couple of months and that could derail efforts to balance the oil market.

WTI crude could be vulnerable to a massive selloff if OPEC+ is unable to extend their production cuts, but that still seems unlikely.  The UAE has clearly made their point and have positioned themselves nicely for when it is time to raise output.

Will gold rebound?

Gold could start to look very bullish now that US lawmakers appear ready to finally deliver a new COVID relief bill and as the bond swoon is driving the reflation trade.  A softer dollar and rising US bond yields should prove very supportive gold prices this month.  The stimulus trade will return shortly for gold as Democrats have finally returned to the negotiating table with a reasonable offer.  Certain parts of the US economy are in desperate need of stimulus and Republicans will not want to play any games ahead of the two Senate runoff races early next month.  It would be political suicide if Republicans didn’t agree to something over these next few weeks.

Even as demand for safe-havens fall as the US and Europe plan immunizations later this month, many investors will want to hold gold for the reflation trade.  Gold should see steady support leading up to the ECB and Fed rate decisions, both of which will announce additional measures.

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