Oil slightly pares gains on Tuesday after Monday’s surge
A 7% surge in oil prices on Monday was always going to be difficult to sustain and Tuesday's modest declines were a reflection of that. Whether fueled by the prospect of an EU ban on Russian imports, Chinese lockdowns being less economically restrictive, or the dimming prospects for substantial Saudi output increases, it seemed oil traders weren’t willing to give up the gains that easy.
It was going to be tough for the EU to agree on a ban that isn’t phased in over time as they have been simply too reliant on Russian oil. In years gone by, maybe. But supplies have been too tight and it will take time to source alternative producers. Still, it was the fact that they were tight and Russian exports were slipping as a result of sanctions, combined with a lack of willingness to alleviate those pressures by those that can that made these prices sustainable for now.
Gold should remain well supported
We were continuing to see consolidation in gold in what was choppy trading conditions over the last week. The yellow metal remained in demand in the current environment, but the recovery in risk appetite had softened its appeal.
That said, inflation was remaining sky-high and the Russian invasion of Ukraine was continuing. Commodity prices pulled back, but remain extremely elevated and the risks still appear tilted to the upside. Gold was unlikely to fall out of favor, but it could continue to consolidate around USD 1,900 as traders protected against the risks that lay ahead.