Oil up on Suez Canal jam, gold steady

Oil

Crude prices went on a wild ride following incremental updates over a ship stuck in the Suez Canal.  Energy traders were trying to get a quick assessment on how long will a massive container ship block one of the world’s busiest waterways.  Oil rallied on fears that the stranded ship could be stuck for days, then pared gains after it seemed canal traffic would resume imminently, eventually settling near session highs after news that traffic should resume later today or by Thursday.

The energy market has largely priced in the short-term crude demand hit and is starting to wonder if OPEC+ might consider a deeper production at the next monthly meeting.  OPEC+, mainly Saudi Arabia has done too good of a job of surprising markets and boosting oil prices.  The bar is set high and if OPEC+ does not signal a willingness to do more, crude quickly resumes its bearish downward trend.

WTI crude initially pared gains after US stockpiles rose 1.9 million barrels, higher than the consensus forecasts of 704K barrels.  Softening Chinese demand and a mixed refinery utilization picture (East Coast at highest since 2019, West Coast at 82.7% capacity) was countered with improving gasoline demand.  After energy traders digested the EIA crude oil inventory report, oil prices extended gains following the broader risk-on move on Wall Street.

Gold remains steady

Gold prices continue to stabilize as emerging geopolitical risks trigger some investors’ safe-haven flows.  Gold ETF selling continued for a 27^th consecutive day, but the selling pressure is starting to ease.  Gold seems like it’s stuck doing the tango with Treasury yields.  The preliminary Markit PMIs showed prices rose to the highest level since the series began, which helped push the 10-year Treasury yield higher and gold prices lower.

Gold’s current consolidation shows investors are not expecting any fireworks from day two of Powell/Yellen, but rather focusing on the next round of Treasury auctions.  Foreign demand is expected to remain strong, but if demand is surprisingly weak, the bond market selloff could intensify quickly.

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