Commodities and Cryptos: Oil holds onto gains post EIA report, Gold softens, Bitcoin steadies

Oil

Crude bullishness returned as COVID headlines supported an improved reopening outlook for the rest of the year and as US stocks rallied to fresh records.  The last couple of days everything was going right for the rebound in crude prices; Vaccine momentum improved, an unexpected offshore platform fire shut 440,000 bpd of Mexican oil output, and the Chinese crude demand outlook is starting to look a lot better. 

WTI crude was able to hold its earlier gains after a mixed EIA crude oil inventory report.  The headline draw was welcomed news but a steep drop in crude exports and lackluster jet fuel demand prevented prices from extending gains.  The end of summer also saw a boost in gasoline demand as Americans take advantage of the last couple weekends before school starts. 

US stockpiles declined by 2.98 million barrels, more than the -2.33 million consensus estimate and but less than the prior 3.2 million draw.  Gasoline stockpiles fell 2.24 million, which took inventories to the lowest level since November.   With production remaining at the 11.4 million level, energy traders can confidently believe that this market remains heavily in deficit given disruption to Mexico’s state-run Pemex production.   

Gold

Gold softened as some investors grew nervous that a hawkish surprise could come out of the Fed’s Jackson Hole Symposium.  Given the recent rally in Treasury yields, it is no surprise gold is settling below the $1800 level.  Friday will be a make-or-break moment for gold bulls, but the narrative post the last policy meeting suggests Powell will likely avoid making any firm commitments about the timing of tapering, but confirm it will be announced before the end of the year.   

Given Wall Street is seeing another fresh record high in US stocks, bullion traders should be impressed gold prices still remain very supported here.   Gold bullishness should return as long as the Treasury curve doesn’t steepen too quickly.   

Bitcoin

The NFT craze is picking up and while that is positive long-term cryptos, it raises a lot of red flags for the froth in the market.  Bitcoin is struggling here as investors await to see if Fed Chair Powell delivers a hawkish surprise and helps drive Treasury yields, which dampens the appeal for risky assets.

Regardless of what happens this week at Jackson Hole, many cryptocurrency traders are waiting to see if risk aversion returns and triggers a Bitcoin buying opportunity.  Bitcoin should continue to consolidate leading up to Powell’s speech on Friday, with some investors unloading some of their riskier positions.

Bitcoin will likely consolidate here, but any 5-10% pullback will likely be met with strong buying demand.

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