Oil rises on Suez Canal but plunges on China tapping oil reserves, gold slightly higher,

Oil jumps on report of Suez Canal blockage

Crude prices sharply rose after reports that a ship was stuck in the Suez Canal, potentially disrupting movement across the vital artificial sea-level waterway.  Sky News tweeted that the ship was floating, but the oil price jump mostly remained intact.

The news from the airlines was not very encouraging for the crude demand outlook.  Southwest Airlines cut its third-quarter outlook again, citing elevated trip cancellations, especially close-in.  Leisure travel is easing and that will make it difficult to turn a profit this quarter.  American Airlines also cut their guidance for the third quarter over softness in bookings and close-in cancellations.  Delta’s update was also downbeat, noting the pace of the recovery paused due to sharp rise of COVID cases.  Delta trimmed their revenue outlook and maintained their total capacity guidance.  The airlines did not give any reasons to be optimistic for a pickup in jet fuel demand as business travel remains depressed as companies delay or scale-down re-openings and as leisure travel declines.

Crude prices plunged after China’s state reserves administration noted a historic decision to release national crude reserves to the market for the first time.  China tapping its crude oil reserves is huge news and should provide much relief for domestic refiners and chemical companies.

WTI crude’s fundamentals were very bullish until the China news of releasing their reserves.  Momentum selling could accelerate and WTI could target the USD 65 level.  The oil market is in deficit but this China story could disrupt it staying in deficit for the rest of the year.

Gold

Gold prices rebounded as investors grew cautious over the COVID impact on the economy after NIAID director Fauci reiterated we’re still in pandemic mode.  He told Axios that Americans are now getting infected with COVID-19 at 10 times the rate needed to end the pandemic.  The Fed’s Beige Book showed economic growth is getting rattled by the delta variant and that will continue to weigh on the outlook.

The stimulus trade is not dead yet and that is good news for bullion.  Gold will see underlying support as central banks slow down stimulus reductions: The Bank of Canada is turning cautious over growth concerns and both the ECB and Fed will have gradual taper plans that won’t really get going until next year.

The ECB statement was somewhat hawkish, as many traders were surprised over the lower PEPP buying.  Good news for the euro is also very positive for gold prices.  Gold is hovering around the USD 1800 level but that could quickly fade.  If dollar resilience becomes the theme for the rest of the week, gold could see sellers take prices down to the USD 1750 level.

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