Oil up ahead of OPEC+, gold struggling

Oil – all eyes on OPEC+

After an impressive 2.5% rally in the previous session, oil is extending those gains on Thursday ahead of the keenly-awaited OPEC+ meeting and despite a record surge in crude inventories.

Optimism is growing that the group of oil producers could roll over output cuts at today’s meeting rather than easing back on production cuts as was initially expected. Expectations earlier in the week had been for OPEC+ to ease production cuts by anything between 500,000 bpd to 1.5m bpd.

The change in expectations of the OPEC+ meeting has been clearly reflected in the price action of oil. WTI plunged 6% Friday through Tuesday in part on the prospect of more oil flooding the market. The price has since rebounded more than 3% as those fears subside.

The market has been quick to look past the record 21 million barrel inventory build in stockpiles and the largest decline in gasoline stocks. These highly irregular figures can be clearly attributed to the now-passed Texas freak weather freeze. For forward-looking markets, this is no longer a concern.

Gold nears bear market territory

Gold has struggled to find a firmer footing since last August and is now teetering on the verge of a bear market given its 18% drop from the all-time high of USD2080.

Whilst vaccine developments and reopening optimism dragged on the precious metal at the end of last year, movements in the bond market are largely responsible for the latest leg lower. Gold tends to move in the opposite direction to bond yields, so the overnight spike in 10-year treasury yields to 1.5% dragged the precious metal back toward the multi-month low of USD1706 a level, which the bears are having a tough time breaking through, at least for now. With bond yields easing back again in the European session, gold has picked itself up off session lows but the recovery looks weak. Where gold goes from here depends largely on what Powell has to say later today. Any hints that the Fed is not willing to tolerate the pace at which yields are rising could be music to the ears of gold bulls.

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