Crude pares gains post EIA report, gold recovers

EIA inventories signal strong demand for crude

Crude prices pared gains after the EIA crude oil inventory report confirmed the trend of falling US stockpiles.  The headline draw of 7.61 million barrels, a larger decline than both the 6.85 consensus estimate and API decline of 7.2 million barrels.  Jet fuel demand is roaring higher at 1.5 million bpd, the highest level since March 2020, while US production declined 100,000 barrels to 11.1 million.  The energy market is tightening and that is good news that has mostly been priced in.

Crude demand will easily outpace whatever supply returns in the summer.  Carnival’s news that eight cruise line brands will resume in the United States, the Caribbean and Europe is a clear sign this summer travel season will be intense.

Energy traders locked in profits after the EIA crude oil inventory report confirmed the bullish outlook for robust demand and anchored US production.

Gold

Demand for gold is slowly coming back as Wall Street grows more confident that despite the Fed’s pivot over talking about removing stimulus, they are still probably years away from doing tightening.  Gold has recovered around 30% of the plunge that stemmed from FOMC hawkish tilt and could continue to do so on the break of the USD1,800 level.

Federal Reserve Chair Powell continues to insist that inflation is transitory. In an appearance before a congressional subcommittee on Tuesday, Powell acknowledged that inflationary pressures were higher than the Fed had expected, but that runaway inflation was very unlikely.

Gold’s best friend has been a weaker dollar that stemmed from an ultra-accommodative Fed.  Gold will now have to settle for two friends, first an accommodative Fed for the next 18 months or so and secondly a new wave of inflation hedges that stem from many of the tightening cycles that come from a wrath of emerging market central banks (Czech Republic and Hungary).

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