Oil extends gains as inventories are drained

Oil prices appear to have found a floor, pushing higher for a second straight session on Friday following inventory data. However, the rise was insufficient to make up for lost ground earlier in the week and oil is set to book its first weekly loss in six weeks.

Crude oil inventories declined by a larger-than-forecast 6.9 million barrels during the week ending 2 July, taking inventory levels to the lowest since before the pandemic in February 2020. Expectations had been for a four million barrel draw.

The larger-than-forecast draw supports the view that demand is rising amid the economic reopening and as the summer driving season ramps up. However, gains in oil prices are likely to remain capped amid the ongoing OPEC+ spat. While Saudi Arabia and the UAE are still at odds over raising output, oil prices are unlikely to retake recent multi-year highs.

Growing concerns over rising Delta cases could also act as a brake on oil prices.

Baker Hughes rig count data will be in focus later, as investors look to see whether the 10% rally in oil prices in June has prompted more US producers to ramp up output. So far, that hasn’t been the case, but with oil prices well above break-even for these producers, they could soon return to the field.

Gold lacks direction heading into the weekend

Gold enjoyed a good bout of volatility in the previous session, pushing to a three-week high of USD1818 before retreating to close approximately flat just above the key USD1800.

Concerns over slowing global economic growth, coupled with fears over Covid flareups, particularly in Europe and Asia, boosted safe-haven flows into the precious metal. However, these weren’t sufficient for gold to maintain the recent high.

Today gold is directionless, ranging around the USD1800 level, although it’s set for its third straight week of gains. Looking ahead, the Fed Monetary Policy Report could offer some direction for the precious metal later in the session.

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