12/21/2023

Oil falls, gold rises: commodity dynamics

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Key points:

  • Oil prices fell on Thursday after an unexpected increase in US inventories.
  • Concerns about weak demand outweighed worries about disruptions to global trade due to tensions in the Middle East.
  • Gold prices resumed their rise on Thursday, helped by a weaker dollar and lower Treasury yields.
  • After a short-term change in the trajectory of dynamics, oil and gold returned to previous price trends.

After a short-term change in the trajectory of dynamics, oil and gold returned to previous price trends.

 

Oil falls again

Oil prices dipped after a brief rally as worries about subdued demand from a surprising surge in US crude inventories overshadowed concerns about supply disruptions caused by Middle East tensions.

Brent crude futures retreated 3 cents to $79.67 per barrel, while US West Texas Intermediate crude stood at $74.16 per barrel, also losing 6 cents.

Both benchmarks registered gains for a third consecutive day on Wednesday as major shipping companies opted to steer clear of the Red Sea route, leading to longer voyages and higher transportation and insurance costs.

“The market’s focus is once again on weak global demand as the impact of oil in the Red Sea will be limited until its transport increases in the Strait of Hormuz”,

said Tsuyoshi Ueno, senior economist at the NLI research institute.

“Building U.S. crude oil inventories and record domestic oil production also added to the pressure”.

A report from the US Energy Information Administration (EIA) released on Wednesday indicated that US crude oil inventories increased by 2.9 million barrels to reach 443.7 million barrels in the previous week.

“With no additional production cuts coming from OPEC+ this year, oil prices will likely remain in their current range for the rest of the year, with a focus on key economic statistics and how the US dollar reacts to them”,

said Naohiro Niimura, partner at Market Risk Advisory.

He predicted that WTI would trade between $70 and $75 this month.

 

Gold is rising

Gold prices regained their upward trend on Thursday, driven by a weaker dollar and declining Treasury yields as investors awaited further insights into the Federal Reserve’s monetary policy stance from upcoming US economic data.

Spot gold climbed 0.3% to $2,035.19 per ounce. US gold futures held steady at $2,047.10.

The dollar depreciated by 0.1% against its major counterparts, rendering gold less costly for holders of other currencies.

“Gold continues to be supported by the prospect of a global rate cut cycle, mainly in the US”,

said analyst Kyle Rodda.

“From a technical perspective, prices have lost momentum; “There’s a risk that we’ll get a short-term pullback, especially given recent resistance from Fed officials over the prospect of cuts next year and potential bond overbought”.

Traders focus shifts to the upcoming release of the third-quarter US GDP figures and weekly jobless claims data, while awaiting the highly anticipated release of the November core Personal Consumption Expenditures (PCE) index and the Fed’s core inflation gauge on Friday.

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