Oil steady, gold turns negative on dollar bounce

Crude recovers on inventory report

Crude prices bounced back after a mostly bullish EIA crude oil inventory report.  Inventories declined more-than-expected with a 1.66 million bpd draw, and jet fuel demand jumped to its highest level since early January, US production remaining steady at around 11 million bpd, and summer driving season is already here.

Energy companies will continue to thrive as the crude demand recovery will likely mean higher prices for the rest of the year.  Over the next couple of months, prices should consolidate with WTI having a strong floor at the USD60.00 level.

The fifth round of talks over the Iranian nuclear deal are ongoing, but still seems poised to get done over the next couple of weeks.  Depending on what and how soon is agreed upon over Iran sanction relief, oil prices could wildly swing in any direction.  A complete removal of sanctions would send prices sharply lower, but that still seems very unlikely.  This deal would need congressional approval and US lawmakers wouldn’t pass immediate relief unless compliance was confirmed.

WTI crude still seems poised to remain stuck in the mid-USD60s until clarity emerges with the Iranian nuclear deal.  Next week’s OPEC meeting will be difficult until clarity is known with Iran’s output.

Gold

Gold’s bullish breakout is firmly intact but ripe for a brief consolidation as the dollar rout appears poised for a pause.  Investors could see choppy conditions for bullion until after Friday’s PCE releases and next week’s nonfarm payroll report.

Gold prices started to give up earlier gains after the dollar caught a bid on news that China may cancel some US grain orders.  China’s decision to restrict some grain orders gave investors an excuse to abandon the overly crowded bearish bet against the dollar.  Treasury yields also bounced back and that sent gold below USD1900.  It will take a significant jump in commodity prices to trigger persistent inflationary fears, so it seems the transitory trade should keep gold prices supported.

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