Oil under pressure over OPEC production
Crude prices remain vulnerable despite resounding dollar weakness as the latest spat between Saudi Arabia and the UAE raises the risk of taking the energy market off the path towards rebalancing. Oil prices could continue to slide each day that passes that progress is not reached in finding a compromise to delaying the January supply hike. The UAE resistance to delaying the output hike was not expected and will likely force OPEC+ to have production discussions become a monthly event.
The base case seems like it should be that OPEC+ will have a tougher compliance stance and that production hikes will get delayed only one month. That should keep oil stable in the short-term but provides strong likelihood production talks will get ugly once crude demand picks up and everyone battles for market share.
Gold climbs above USD1800
Gold’s comeback is all about dollar weakness. The deceleration with US economic manufacturing and labor data is driving expectations that over the next few weeks more monetary and fiscal stimulus is coming. The long-term driver for gold remains the inevitable return of inflation. The longest economic recovery ever was able to provide sustained inflation, but the economic recovery, once we are back to pre-pandemic life, will be accompanied with rising price pressures.
Gold has flexed some muscle on Tuesday, as the yellow metal has climbed 2.1%. If gold holds onto these gains until the end of the day, it would mark its best one-day gain since November 5th. Gold tumbled 4.4% last week, but is now comfortable above the USD1,800 level and might not see much resistance until the USD1850 region. It seems the vaccine news, which has taken over the headlines for weeks, is heavily priced and that should no longer be the primary bearish catalyst for the precious metal.