Oil higher as Iran talks drag on, gold steady

Oil gains ground

Crude prices surged higher as Iran nuclear talks continue to drag on and following one of the easiest OPEC+ meetings.  It looks Tehran and the US are not as close to finalizing a deal as many have thought, possibly delaying everyone’s forecast for the return of additional Iranian crude.

One used to be able to cut the atmosphere of an OPEC+ meeting with a knife.  That no longer seems to be the case after a couple of meetings of everyone getting along.  A push to raise output to keep the pressure on American shale did not happen and perhaps OPEC+ no longer views US output as a threat under a Biden administration.

OPEC+ agreed to stay the course with their gradual plan of raising oil production in July.  This was expected, but it would have made sense for some countries to start posturing for next month’s meeting already.  Given the robust crude demand recovery in the US and gaining momentum in Europe, the risks of shortage later this year are growing.  OPEC+ did not discuss the return of Iranian oil as the revival of the nuclear deal has not yet been finalized.

The next OPEC+ meeting was confirmed for July 1^st and if Europe and Asia continue to get more COVID vaccines and variant risks remain contained, cartel members are likely to push for a greater ramp-up of production.

After the OPEC+ press conference ended, Brent pared some gains as energy traders have no insight as to what will happen to output in August.

Earlier, IEA Executive Director Birol said it best that given the strong demand recovery, if OPEC+ stick to their current policies, we could see a widening gap between supply and demand.  Brent crude prices have made up their mind, they are not leaving these elevated levels.

Gold

Gold initially stumbled today as US Treasury yields rallied as pricing pressures emerge globally.  Earlier in Europe, eurozone inflation tested above the ECB target for the 1st time since November 2018.  Gold extended declines after a key manufacturing report showed inflationary pressures are intensifying over persistent supply chain pressures and labor shortages.

Gold’s price action is poised for a consolidation pattern leading up to Friday’s nonfarm payroll report.  A blockbuster employment report is the key for the reflation trade which would also be the catalyst for rising Treasury yields.  Today’s manufacturing data doesn’t change anything with inflation, it still looks transitory, but it did cast doubts over the labor market recovery.  The Fed’s ultra-accommodative stance will likely be confirmed on Friday, with everyone still expecting these next couple of months will be filled with upward pricing pressure.

Gold might be forming a broadening formation heading into Friday, with USD1,880 as key support and USD1,940 as resistance.

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