Oil pares losses post OPEC+, gold rallies on Putin gas threat

Biden expected to order SPR release

Crude prices pared losses after OPEC+ decided “to stay the course” and maintained the gradual output increase strategy.  Oil was down earlier after reports that the Biden administration was considering a record reserve release of up to 180 million barrels from the country’s strategic petroleum reserve (SPR).  President Biden is feeling the pressure from Americans as inflation is getting uglier and this speculated release will show the public he is trying to get gas prices down with the exception of encouraging more drilling.  This proposed record SPR release could have also been a chess move to try to pressure OPEC+ into delivering more output, but obviously had no impact.

OPEC+ decided on sticking with the collective target of the 432,000 barrels a day in May.  The output targets have both Russia and Saudi Arabia approved to pump 10.549 million bpd, which probably doesn’t bode well for compliance.  This oil market will remain tight and any coordinated tapping of strategic reserves will only be effective if peace talks in the war in Ukraine are headed in the right direction.  If it becomes clear that a major de-escalation in the war is not going to happen, then oil could surge back to the recent highs.

Gold

Gold prices rose after President Putin said Russia will no longer supply gas to buyers from unfriendly states unless they switch payment to rubles by tomorrow.  This puts Europe in a tough position and raises the risks of greater pricing pressures.  Gold will remain headline-driven and seems poised to make another run higher as the latest Russian move on gas contracts suggests a breakthrough in peace talks seems very far away.

Gold will find major resistance at the USD 1970 level, but if that isn’t much of a barrier a clear path to USD 2000 could emerge.

The dollar also rallied against the euro following Putin’s decree on gas contracts and rouble payments.

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