Oil higher, gold’s wild ride

Oil rises as demand expected to increase

After digesting a larger-than-expected inflation report, crude prices pushed higher despite a stronger dollar as expectations grow that global crude demand recovery will be very strong in the second half of the year.

The weekly EIA crude oil inventory report showed a smaller-than-expected draw with some of the data impacted by the Colonial Pipeline cyber-attack.  Exports suffered the worst decline on record, while crude imports were mostly steady.  Crude production rose 100,000 bpd, but still remains capped by the 11-million mark and that seems to be a key level if untouched that will keep OPEC+ happy.

Jet fuel demand continues to improve, reaching a five-week and that seems poised to get better as Americans get the travel bug.  Gasoline demand dipped to 8.8 million bpd, while exports rose to a 1.5 year high on Mexican demand.

The path for crude prices appears to be higher but until the situation improves in India, WTI will probably struggle to break above the early March high.

Gold/FX

Gold went on a rollercoaster ride after the US economy had its largest 12-month increase with consumer prices since the summer of 2008.  The knee-jerk reaction saw the hot inflation print take Treasury yields higher and sent gold sharply lower.  Gold prices quickly recovered all of its losses as investors anticipated one inflation report won’t change the Fed’s ultra-accommodative stance anytime soon.

Gold’s rebound was short-lived after the bond market selloff extended, as the 10-year Treasury yield pushed above the key 1.68% level.  Real yields also look to have formed a bottom and that will likely be a headwind for gold.

Adding to gold’s struggles was the dollar, which was due for a comeback.  The rebound in the dollar will likely prove temporary if Treasury yields find a range and slowly grind higher.  King dollar will enjoy the move in Treasury yields, but that might only be for a short period of time.  This inflation report will unlikely trigger a capitulation of the recent bearish bets against the greenback.

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