Oil consolidates, gold vulnerable

Oil consolidates at lower levels

After two straight sessions of strong declines, the sell-off in oil is showing signs of steadying. Investors have been busy booking profits following the almost 11% OPEC-meeting-inspired rally last week. OPEC’s decision to maintain output production cuts through April was fiercely cheered by the markets.

While the OPEC+ group have successfully prevented a sharp sell-off in the price of oil, the group could also be shooting itself in the foot. The resultant higher oil prices on the back of production cuts could encourage US oil producers back into the game. The EIA now expects US production to fall by 160,000 bpd in 2021 – a 40% decrease from its previously forecast 290,000 daily decline.

The API reported a rise in crude inventories by 12.8 million barrels. This was significantly ahead of the 800,000 forecast but has been broadly shrugged off by investors as oil prices try to turn positive. Attention will now turn to official EIA data due later today. Another historic build in inventories could be in the pipeline after last week’s 21.5 million barrel build.

Gold at the mercy of bond yields

Gold posted strong gains in the previous session, surging more than 2% thanks to declining yields. Lower US treasury yields make non-yielding gold appear more attractive.

Today, gold, like many other assets, is treading water ahead of the US session. The precious metal is awaiting fresh direction from US CPI data and the bond auction. Given that gold is a hedge against inflation, these events will be key for setting its path. Immediate downside is protected by support at USD1700, followed by USD1685. Any push higher could see gold head to resistance around the USD1740 region.

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