Oil steady ahead of OPEC+ meeting, gold hanging around

Oil steady ahead of OPEC+ meeting

Crude prices are steadying ahead of Thursday’s pivotal OPEC+ meeting.  Crude demand has clearly been improving as global stockpiles have steadily come down.  The energy market is bracing for more supply to come into the market, but continued vaccine optimism and global reopening hopes will likely limit most of the downward pressure with oil prices.  The Saudis will likely end their voluntary 1-million bpd of production cuts, with OPEC+ increasing their collective output by 500,00 barrels a day next month.

A big focal point will fall on compliance as every OPEC+ member is anxious to win back market share.  OPEC production posted the biggest drop in 8 months thanks to the Saudis, but cheating from Nigeria and Iraq will draw intense scrutiny.

It is hard to imagine a scenario that has oil prices rising higher ahead of the Thursday meeting, but if that does happen, energy traders will be looking for a ‘buy the rumor, sell the news’ reaction for WTI crude.  Even if prices steady over the next couple days, crude seems ripe for a tentative pullback.

Gold

Gold’s beatdown might be over now that the global outlook might have chinks in the armor.  The global bond market selloff could very well resume, but central banks are lining up to voice their concern over surging bond yields.  The RBA earlier in the week doubled down on their asset purchases and today ECB’s Panetta noted that a steeper nominal yield curve must be resisted.  If the Fed clearly signals they are in agreement with the other central banks, gold could easily get its groove back.

The risks to outlook are growing albeit the biggest one appears to be asset bubble concerns, so gold could easily start to see safe-haven inflows.  Financial markets have become fixated with COVID vaccine rollouts and are overlooking China’s home-grown technology initiatives and potential disruption to FAANG stocks.

Gold’s last major selloff could be behind us or one last plunge towards the USD1650 level could be needed to attract long-term institutional investors.

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