Oil prices went on a rollercoaster ride after inflation eased slightly, the resumption of oil flows through the Druzhba pipeline, and as US production rose to the highest levels since April 2020, while oil inventories posted a large build. The EIA crude oil inventories had a lot to take in. The headline build of 5.4 million barrels was greater than consensus estimate of a one million barrel increase. Gasoline demand bounced back and that trend could continue as we are still in the peak summer driving season. Crude demand isn’t roaring here and as production nears the return to pre-pandemic levels, the oil market isn’t look so tight anymore.
It is odd to see risk appetite run wild and yet oil prices are struggling here. Energy traders need to see proof that crude demand is improving, before oil prices can rally again. The geopolitical risks from the war in Ukraine and China’s COVID situation are big wildcards for oil that could easily be the catalyst to send crude prices back above the $100 level.
Gold
Cooler-than-expected CPI data boosted gold as traders began positioning their portfolios for a Fed pivot in September. Gold initially surged after inflation decelerated sharply but the rally lost steam as some doom and gloom traders began piling back into risky assets. Yesterday was a good day for safe-haven flows for bullion as US stocks and cryptos surge.
It is not a foregone conclusion that the Fed will be much less aggressive with hiking interest rates, but stock traders may remain a bit aggressive here. Gold’s path higher is still there, but it might take a little while longer if equities remain bid for a while.