Oil prices are paring recent gains for the second day as the IMF and World Bank warn of an increased risk of a global recession. Those warnings won’t come as an enormous surprise given the immense economic headwinds as a result of the pandemic and Russia’s invasion of Ukraine, not to mention the baffling decision by OPEC+ last week to cut output by two million barrels per day which will only add to them.
Oil prices rose around 20% from their September lows as a result of the output decision and may not be done yet. Prices are now back around levels the alliance appears to be targeting, despite forever claiming that balancing the market is what they’re interested in. The level everyone is focused on now is $100 which Brent has struggled to overcome since early July. Perhaps with OPEC+ squeezing supply, it will have more luck this time.
Gold crumbles after unsustainable recovery
The rally in gold always looked like it was going to be difficult to sustain in an environment of higher government bond yields and a dominant dollar. And it has well and truly wilted over the last week, initially easing off its highs before totally giving up as it collapsed through $1,700 before stabilising a little today around $1,660.
A 4% decline in less than a week and it’s hard to see it turning things around without a big helping hand from the US inflation data on Thursday. The Fed minutes will be of interest but to a large extent are outdated at this point. Even the CPI release may come too late as the Fed has made it clear that one good reading won’t be enough to change course. We’ll see whether traders agree over the coming days but early signs aren’t promising.
Key levels below include $1,640 and $1,620, with $1,600 then the one to watch. If it does manage a recovery, then $1,685-1,690 looks interesting as it’s a level it has repeatedly rotated around in recent months.