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Oil higher on possible Chinese COVID pivot, gold rebounds



US natural gas declined to the lowest levels since March as supply concerns have slightly improved. ​ Over the past week, energy traders have digested a few winter weather forecasts and it seems many are thinking the south will be drier and warmer than usual, while the northern tier, Midwest and Ohio valley could have a colder winter.

Oil prices rallied on hopes that China is starting to pivot with their COVID quarantine guidelines and as energy traders start to price in a hard floor for WTI crude after yesterday’s White House announcement on how they will restock the SPR. ​ The Biden administration intends to buy WTI crude ahead of the $67-72 a barrel range, which means oil should remain supported if China doesn’t suffer a major COVID setback. ​ The latest round of US economic data suggests the economy is still in good shape and any immediate hits to the short-term crude demand outlook are premature. ​

WTI crude should start to form a range slightly above the $90 level, with the upside tentatively capped at the $100 level. ​

Gold bounces back

Gold prices are rebounding as the dollar softens slightly after political turmoil in the UK drove the British pound higher and as BOJ was forced into action. ​ The BOJ had no other option but to do an additional unscheduled purchasing of JGBs. The dollar-yen testing the 150 level in New York is putting more pressure on Japan to intervene. ​

Gold is still battling steady outflows from gold-backed ETFs and that trend should limit any rebounds we see over the short term. ​

Another round of US economic data and earnings still supports the argument that the labor market is strong and that the economy is slowly weakening. ​ It looks like the Fed might be in a position to tighten aggressively beyond the winter and that could drive further weakness for gold. ​

It looks like a matter of when will gold break the September lows but for now it is stabilizing as it seems it will need a fresh catalyst to send prices below the psychological $1600 level. ​

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