Oil demand forecast looks weak

Oil prices are in wait-and-see mode as virus restrictions rise and vaccine rollouts begin.  The short-term crude demand outlook remains bleak.  New York is at risk of a second full shutdown, the Netherlands will have a five-week lockdown that includes school closures, and Sweden had hospitalizations surge to an all-time high.

Crude prices did not react much to the IEA monthly report that lowered the demand outlook for 2021.  The IEA noted that crude’s glut problem would likely last till the end of the year.  Always the following act to the OPEC monthly report, the IEA report did not provide anything new.

WTI crude extended gains alongside US stocks as prospects for another COVID relief bill grow.


Gold rises on stimulus hopes

Gold prices are rising on optimism that lawmakers are closer to passing a compromised stimulus package.  The political pressure is hitting a critical level as the virus spread over the holidays is likely to trigger more lockdowns that force many businesses to close.

Gold ETF selling appears to be slowing down, despite the fourth consecutive daily decline.  Gold investors reduced holdings on COVID-19 vaccine breakthroughs, presidential election risks, and as a no-deal Brexit seems less likely.  The reflation trade and rising inflation risks towards the latter part of the year should provide enough reason for the ETF investor to increase their holdings.

Gold is hovering once again around the USD1850 level and should look to extend gains if Congress continues to take strides towards passing the compromised COVID relief bill. There is optimism that lawmakers will reach a compromise, and the split-stimulus package could be the recipe that everyone can live with. Congress will have to vote on two bills before the end of the week.  The first is a 748 billion dollar package that is mostly agreed upon covers additional unemployment benefits, rent assistance, and the extension of PPP.  The second bill has all the sticking points that have caused the political impasse; namely, liability protection for businesses and aid for state and local governments. The Democrats seem willing to drop state and local aid for now, which could pave the way for both bills to get passed in Congress.

By Ed Moya