Oil prices showed a further small retreat this morning following losses yesterday sustained after the U.S. International Energy Agency’s weekly inventories report showed inventory levels had reached record highs. Brent crude prices eased 6 cents taking the price of a barrel down to $55.69 a little before market open in London. WTI was down 10 cents to $53.01.
The IEA’s Wednesday report noted that crude inventories saw an increase of 9.5 million barrels last week. That gain took commercial reserves to 518 million barrels, an all-time record after increases significantly ahead of forecasts were also recorded during the previous weeks. Increasing production in the U.S. is also not the only reason why inventories are so bloated. Imports are a major contributor and demand is down on traditional levels for the time of year. A drop in gasoline demand has meant that refineries are processing less than they have committed to import with a 9.9% increase in imports over the past 4 weeks compared to a year ago. Imports levels early this year, the result of buyers taking advantage of bargain oil prices last year to lock in the price of future deliveries and expectations prices could rise in coming months as OPEC cuts take effect have combined with the rise in local production and soft demand to pile inventories high.
Gold prices have crept up ever so slightly this morning as the dollar eased. During Asian trading spot gold gained 0.1% to $1233.16 with futures gaining by the same margin to $1234.6. Prices had dipped by around 0.2% on Wednesday as risk and income earning markets received a boost from Fed boss Janet Yellen’s hawkish comments on the U.S. economy.
Experts currently have conflicting views on where gold prices will go over the next several months. There are a number of events in coming months which could unsettle markets, such as important elections in several European countries including France, Germany and the Netherlands. Surprise victories for right wing candidates would likely boost safe haven demand. There is also the unknown quantity of the Trump administration and the risk of instability within the U.S. and the wider international context if things go awry.
However, for now at least, things look good for equity markets and market sentiment is generally risk on with economic data from around the world looking positive and the prospect of a strengthening dollar, looser fiscal policy in the U.S. and corporate tax cuts. Without any major changes to the current landscape, that would put pressure on gold price, already up 10% from December lows. Any significant new rally might have to wait for the second half of the year or something major to spook markets in the meanwhile.