Oil slumps as more short-term relief expected, gold struggles

Oil prices fall on EIA, SPR

Crude prices declined after both the EIA report showed US stockpiles posted a surprise build and on reports that IEA nations will deliver an additional 60 million barrels from reserves.  Oil might be down today as oil-consuming nations show they are aggressively tapping their emergency stockpiles, but that won’t last as supply constraints will remain given the production outlook for most OPEC+ nations. Pockets of severe supply disruptions for gasoline, diesel, and jet fuel will start to emerge, which should suggest the downside with oil prices should be limited.

Oil executives defended their record profits by reminding the House that they followed historic losses during the earlier part of the pandemic.  When pushed to deliver more production, the standard response was that the Biden administration’s regulation and support for green policies has made it difficult to boost domestic production.

Crude prices extended losses after the dollar rallied following the Fed minutes that showed a strong commitment to fighting inflation.

Gold declines on Fed minutes

Gold prices declined after the Fed minutes showed they are going to be aggressive with tightening and that half-point rate hikes are coming. Now that Wall Street is expecting 225 basis points in Fed rate hikes this year and that number could go up.  Gold’s pain of aggressive monetary tightening is almost fully priced in, but an uber aggressive hawkish Fed could tentatively send gold below the USD 1900 level.  Gold will eventually become attractive once traders start to debate whether the Fed will choose to continue to fight inflation after a couple of super-sized rate hikes or tap on the brakes as growth concerns brew, but after these minutes it will remain all about inflation.

Gold is vulnerable to a drop to the USD 1860 level if we see a sustained break of USD 1900 as the bond market selloff seems like it might be able to go on a while longer.