China and US discuss release of oil reserves
A potential coordinated effort between the world’s two largest economies to release crude reserves sent oil prices lower. The Biden administration asked China to release oil reserves and it appears Beijing is considering it.
Despite a mostly bullish EIA crude oil crude oil inventory report, crude prices are drifting lower. A surprise draw of 2.1 million barrels, a dip in production, and steady gasoline demand was unable to trigger a substantial recovery in prices. The 2.1 million barrel draw countered Tuesday night’s API data of 655,000 build and today’s consensus estimate of a 1.2 million increase.
Inflationary pressures are heating up everywhere and that has some investors nervous about the short-term growth outlook which could also translate to softer crude demand.
If the US and China are unable to reach a quick agreement on a coordinated reserve release, WTI crude should quickly recover to the USD 80 level. A formal announcement could trigger further selling momentum for WTI crude that targets the USD 74 area.
Gold
Gold prices got a boost from hot inflation data from Europe and as the Fed sticks to the wait-and-see approach on whether they are wrong about inflation being transitory. UK inflation has now been above the BOE target for a third straight month and has hit the highest annual pace since 2011. Eurozone inflation was confirmed at 4.1%, a 13-year high that still has yet to faze the ECB.
Gold may consolidate here a little while longer before making a run towards the USD 1900 level.