Oil steadies ahead of API inventory data

Oil prices are treading water on Tuesday after steep losses on Monday as investors digested rising Covid cases in Asia and look ahead to the OPEC+ meeting on Thursday.

The outbreak of the highly contagious Delta variant in Asia and Australia has seen mobility restrictions imposed once again in some areas. The flare-up in Covid cases has reminded the oil market that the pandemic isn’t over yet. Oil prices had been travelling in just one direction over the past month or so. However, the return of mobility restrictions could impact the demand outlook.

Rising concerns over the near term Covid outlook come as investors also shift their focus to this week’s OPEC+ meeting. The group is set to discuss easing the supply curbs. OPEC’s demand forecast shows that demand will outstrip supply by 2.2 million barrels per day in the final quarter of the year. This gives the oil group plenty of wiggle room. An increase in output of around 500,000 barrels is expected, which could be comfortably absorbed into the market given the current OPEC outlook.

API inventory data is due later today. Crude stocks piles have been falling dramatically over the past few weeks as demand surges amid western economies reopening. Another large draw could boost oil prices again.

Gold awaits further direction

Gold prices have done very little this week, trading within a familiar range sub USD 1800 as investors continue to lick their wounds following the 6% decline at the beginning of the month – its worst monthly performance in five years.

A stronger dollar and expectations that the Fed is moving towards tightening monetary policy has dragged on the precious metal. Since the fateful FOMC meeting mid-month, which saw a hawkish shift by the Fed, gold has been unable to make any meaningful move higher. Since then, the Fed’s mixed messages have kept the price of gold steady at its current levels. Gold has found support around USD 1775, with the hawkish tilt now priced in. We are unlikely to see any big moves in the precious metal until Friday’s non-farm payroll numbers.

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