Oil slumps, gold shines

Oil recovers losses on unexpected stockpile decline

Crude prices rallied after US stockpiles unexpectedly declined and as gasoline demand strengthened despite the high prices at the pump.  The oil market deficit is not going away anytime soon as gasoline and distillate demand remains healthy, while jet fuel demand should pick up next month as international roars back.

US stockpiles fell 431,000 barrels, quite the contrast from last week’s 6.08 million build and expected increase of 1.28 million barrels.  The majority of analysts anticipated a build, so the initial reaction was very bullish.  The global energy crisis gave US exports a boost to Asia and Europe.  US production also declined 0.9% to 11.3 million bpd, a gentle reminder that we are probably nearing the peak in output despite the strong deficit that is in place.

WTI crude did not deliver much of a dip over the past couple of weeks and could be ready to rip higher.  Earlier headlines, that China would do whatever it takes to alleviate the energy crisis, sent crude lower despite the efforts by the Chinese being aimed at the coal market.  The only card that the Chinese have in slowing oil’s move higher is tapping reserves and that is a card they need to wait until they are facing USD 90 or USD 100 oil.

WTI crude could see momentum target the USD 85 level in the short term.

Gold

Gold prices were so close to the USD 1,790 level then hedge fund titan, Paul Tudor Jones told CNBC that crypto is his preferred inflation hedge over gold right now.  Gold is still up nicely today as Fed rate hike expectations may have gotten a bit too aggressive.  We have to remember the board is still dominated by the doves and with the new members likely to be dovish, rate hike expectations should price in immediate increases once tapering is done.

Fed’s Waller, a centrist member noted that rate increases are probably “still some time off”, which will probably be where Fed Chair Powell will stand.  Sooner-than-expected Fed rate hike expectations are short-term negative for gold but at some point that could derail the relentless buying spree of equities and trigger some safe-haven flows to gold.

Gold has two enemies right now, surging bitcoin that is stealing away inflation hedge and rising Treasury yields.  Gold has a messy path higher, but it is still there.

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