Oil – edges lower EIA data up next
Oil is trading with a slight negative bias after strong gains in the previous session. A report that Chinese imports dropped in the first half of 2021 compared to a year earlier has raised some questions over demand, taking the edge off yesterday’s strong rally. Chinese imports declined by 3% in the first half of 2021, compared to 2020. This is the first crude import decline in eight years. The concern here is that elevated oil prices are eroding demand.
Despite today’s decline, oil prices are holding near weekly highs after API inventory data revealed that stockpiles fell for an eighth straight week as demand continues to outstrip supply. Crude inventories declined by 4.1 million barrels for the week ending 9 July.
While OPEC+ is yet to agree to production increases, a cloud of uncertainty hangs over the oil market. Oil prices are unlikely to retake the multi-year high reached earlier this month while the OPEC+ impasse continues.
Attention will now turn to EIA crude stockpile data.
Inflation hedge gold rises
Gold prices are advancing after modest gains in the previous session. The precious metal managed to edge higher despite a jump in the US dollar and higher yields. Gold, which is often considered a hedge against inflation, benefitted from the sharp rise in US inflation, even though this could prompt the Fed to tighten monetary policy.
US CPI came in at 5.4% YoY in June, well up from 5% in May and ahead of the 4.9% decline forecast. Inflation grew at the fastest clip since 2008, heaping pressure on the Fed to tighten monetary policy sooner. In fact, expectations have now shifted towards a rate rise in late 2022 rather than 2023, which triggered a surge in US treasury yields, boosting the US dollar. The stronger greenback capped gains in gold. The downside remains cushioned by rising Covid cases.
Today the US dollar is heading back lower, lifting the price of dollar-denominated gold. Attention will now turn to PPI inflation data and Fed Chair Powell’s semi-annual testimony before Congress. Any comments on inflation and clues over the Fed’s next moves will be closely watched.
