Oil Prices Tick Back Up on Softened U.S. Dollar but Gold Continues to Slide

on Jan 26, 2017

Oil prices ticked back up today after yesterday’s retreat as the softening U.S. dollar prompted buying. Brent crude had gained 50 cents, or 0.9%, by 09:00 GMT, with WTI up 40 cents, 0.76%, to $53.15. Balancing out the positive influence of the weaker dollar, down 3.9% since its peak earlier this month, was U.S. crude inventory data released yesterday by the EIA. The U.S. Energy Information Administration released figures for last week which showed a 2.84 million barrel increase in inventories, up to 488.3 million barrels. The increase indicates that supply in the U.S., the world’s biggest oil market, is plentiful with increasing U.S. production limiting the impact of OPEC supply cuts.

The dominant theme dictating oil prices over the next couple of months is most likely to be the opposing forces of decreased production from OPEC and its partners in supply cuts, such as Russia, and increasing U.S. output. The big question is if OPEC and partners’ cuts will prove to be enough to reduce global oil supplies in the face of the U.S. ramping up its own production levels.
Meanwhile, as equity markets received a further boost from Trump signing further executive orders on infrastructure yesterday, notably the controversial ‘wall’ along the border with Mexico, gold prices dropped again today. Immediately prior to markets opening in London this morning spot gold prices were down 0.34% to $1,196.12 oz., taking them below the previous January low set on the 13th. Futures dropped 0.1% to $1,195.80 oz. on the Comex yesterday in New York.

Seasonal gold demand has dropped over the last few days with the Lunar New Year festivities starting tomorrow in China, where markets will be closed for a week. It can be expected that the most likely scenario is that gold prices will show a further slide over the next week. That could be further enforced if equities markets remain buoyant. How much demand holds up and limits the slide will be a good indicator of market sentiment towards gold at present.

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