Oil slumps as ship freed, gold falls

Oil slips on Suez opening, Covid

Ever Given is afloat and Egypt’s Suez Canal appears poised to be reopened.  A backlog of a few hundreds of ships will take weeks to normalize and the financial impact will be felt for months.  With 12% of the world’s seaborne trade now set to reopen, crude prices turned negative as supply disruption risks have faded.

Adding to the short-term woes for the crude demand outlook is that global Covid cases have risen for a fifth straight week.  US Covid cases are increasing but a successful vaccine rollout makes it seem less likely a fourth wave will happen.  The next few weeks will be tough for Europe, but new measures and improved vaccine execution should lead to a much more optimistic outlook in May.

Oil prices will likely consolidate until the pivotal OPEC+ meeting on output.  A consensus was building that OPEC+ would easily agree to keep production steady, but now that the colossal container ship is set free that might change.  Despite the surge in global cases, US and Asia demand should be healthy and strong.  Each monthly meeting on output will grow harder and calls for the unwinding of production cuts will grow.

WTI crude prices should consolidate leading up to the OPEC+ meeting but could settle lower if the strong dollar trend continues.

Gold under pressure

Gold prices tumbled at the open as investors wrote-off the forced liquidation of more than USD20 billion in holdings linked to Archegos Capital Management as not a systemic risk and not the end of the current cycle.  Investors are not abandoning stocks and going into safe-havens, and when you add in that Treasury yields are rising again, gold doesn’t stand a chance.

Gold’s consolidation is breaking and if downward pressure takes prices below the USD1700 level, it could get ugly fast.  Massive support throughout the pandemic has been the USD1670 level and if that doesn’t hold, not much support is seen until the USD1600 level.

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