Crude prices are declining as both supply- and demand-side drivers start to turn bearish. The massive IEA crude reserve release plan will provide short-term relief for oil prices, but that is also happening as China’s COVID lockdowns are becoming a bigger hit on crude demand. What is also helping drive oil down is the overall risk aversion environment on Wall Street that is sending the U.S. dollar higher, which weighs on commodity prices.
It doesn’t look like the EU will be sanctioning Russian oil any time soon, and that suggests oil will need a couple of new catalysts to make a run back towards the recent highs. The oil market remains tight, so this weakness might only last a little while longer. The respective March lows could hold for both Brent crude and WTI crude.
Gold Rises As Fed Talks Tough
Gold is starting to see safe-haven flows as investors sell stocks over fears that the Fed will be much more aggressive with tightening monetary policy. Geopolitical risks have provided some underlying support for gold and if the next round of sanctions from the EU against Russia are hard-hitting, gold could have a meaningful rally out of its trading range.
Given the Treasury yields have basically doubled in the last several months, gold staying above the $1,900 level is rather impressive. As recession concerns brew and the debate of which Fed mistake will be made, gold should start to see steady inflows in the coming months. The Fed will either send rates too high and send this economy into a recession or it will flip-flop again and risk losing credibility.
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