Oil awaits OPEC+, gold rebounds

Oil prices fall for a second straight day

Crude prices have shrugged off the strong start following the FDA’s approval of the J&J COVID-19 vaccine.  The US now has three highly effective COVID vaccines and if virus variants don’t derail the trajectory of new cases, herd immunity could be reached in a few months.  Also providing some support for oil was better-than-expected US manufacturing data.  The data was impacted by the deep freeze, but surging demand shows how ready this economy is ready to roar once large parts of the country return to pre-pandemic life.  The bond market has calmed down and that should stop the dollar from strengthening.

Oil will likely trade rangebound ahead of Thursday’s key OPEC+ meeting which will test the relationship between the Saudis and Russians.  The question at hand is how much should OPEC+ increase production in April.  Some softness in Chinese economic data, albeit likely impacted due to the Lunar New Year holiday, could support the Saudis call to remain conservative with ramping up output.  The Saudis hold a lot of the cards since they are the ones that have delivered a surprise extra 1-million bpd cut, but this is OPEC+ and it could get messy on how they divvy up the share of  next month increases in output.  In addition to the Saudis ending their voluntary cut, April production could increase anywhere from 300,000 to 500,000 bpd.  This is a live meeting, but most energy traders would likely welcome a pullback in crude prices.  With an improving global COVID-19 vaccine outlook, the energy market is bracing for much higher prices by the end of the year.

Gold

Gold prices are stabilizing as the bond market selloff appears to be over.  Treasury yields are higher but the skyrocketing pace appears to be over.  This week is all about Fed speak and if they can signal a little concern over the impact of higher yields on the recovery, that should give many investors the all-clear sign for scaling back into gold.

Gold’s rebound is somewhat unimpressive as a broad stock market rally has investors piling back into only stocks.  Gold is not in the clear just yet, but the fundamentals appear to be improving.  The US economy is a couple of weeks away from Biden’s massive relief bill and then ramped discussions over infra-structure spending, which will allow the stimulus bowl to overflow.

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