Oil slides on SPR, gold drifting

Oil tumbles on Biden SPR hopes

Oil prices moved sideways overnight, Brent crude rising just 1.25% to USD 112.60, and WTI rising 2.25% to USD 107.45 a barrel. Both contracts modestly unwound the Ukraine knee jerk trade yesterday.

In Asia, oil prices have slumped as stories started circulating that US President Biden will announce a multi-month SPR release today that could total 180 million barrels, with suggestions that other IEA members could join in a reserve release after their meeting on Friday. That has pushed Brent crude 3.40% lower to USD 108.75, and WTI 4.85% lower to USD 102.25 a barrel. Given that the SPR is US-based, WTI has unsurprisingly, fallen further proportionally.

As I set out above, if the plan is correct, then it could well set a ceiling on oil prices at the panicked March highs. However, until OPEC+ production catches up, the structural deficit will persist, meaning oil prices are unlikely to move materially lower from here. The big variable will be OPEC+’s response and the outcome of this week’s meeting. My feeling is that although key members remain apathetic to the Biden administration, they will not want to openly antagonise it by cutting production increase targets.

Overall, I still expect Brent to trade in a choppy USD 100.00 to USD 120.00 range, with WTI bouncing around in a USD 95.00 to USD 115.00 a barrel range. An Iran nuclear agreement finally getting over the line, in combination with OPEC+ monthly increases and an extended global SPR release will change that outlook.

Gold trades sideways

Gold prices edged higher overnight to USD 1932.50 an ounce, gaining some support after the aggressive sell-off from lower US yields and a lower US dollar. The momentum has faded in Asia, with gold edging 0.37% lower to USD 1925.50 an ounce.

Gold markets once again look like they have got themselves long and wrong, this time above USD 1960.00 an ounce. With gold unable to rally on a softer US dollar or lower US yields, the risks of another downside washout are rising once again. Gold has resistance at USD 1940.00, with nearby support at USD 1915.00. Failure should see gold retest USD 1900.00. A sustained break of the USD 1880.00 region will probably trigger a capitulation trade, potentially pushing gold down to USD 1800.00 an ounce.

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