Oil under pressure, gold edges higher

Oil falls as pipeline disruption seen as temporary

Oil prices are falling as the Colonial Pipeline disruption has all the hallmarks of a short-term glitch. Investors have accepted that the pipeline failure is not likely to be an ongoing issue, with a phased restart expected imminently and full operation restored by the end of the week. The prospect of a return to normality has seen the price of oil slip back to Friday’s levels.

The Covid crisis in India, which shows few signs of easing, is adding to the oil market’s woes. The seven-day average of new daily cases is at a record high, and global health authorities are already warning over the country’s variant, which is of international concern. Pressure continues to mount on Prime Minister Narendra Modi to impose a national lockdown in a bid to contain surging cases.

Looking ahead, crude oil inventories are expected to show a 2.3 million barrel decline following an 8 million barrel drop the week before. OPEC is also expected to release its monthly oil market report today.

Gold rises, but gains capped at 200 DMA

Gold bulls are pausing for breath after a strong rally last week and further gains at the start of this week. Yesterday’s buying has seen some tepid follow-through on Tuesday. The yellow metal remains supported by the risk-off mood in the market and the slightly softer tone surrounding the US dollar.

Inflation concerns are being played out in the equities market. US treasury yields are also starting to move higher, back over the key 1.60%, which could cap gains in gold as the opportunity cost of holding the non-yielding precious metal rises.

Gold has had a steep run higher over the past few weeks. The poor US jobs report cemented expectations of a low for longer Fed. Gold has approached its 200-day moving average and is likely to struggle to move past this level ahead of tomorrow’s US inflation data.

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