Bearish momentum in the oil markets continued for a second day following US Crude Inventories jumping well beyond forecasts for the second successive week in a row. Both WTI and Brent Crude slid to weekly lows following the announcement, with WTI declining to $48.08 and Brent Crude weakening to $55.14. Both commodities have now lost nearly $4 over the past two trading days with the losses commencing after the International Energy Agency (IEA) warned that global inventories are set to continue to rise, before any possible cut in production.
The IEA provided a gentle reminder to traders that the supply and demand equation remains very much present, with data as recently as yesterday validating this view. Not only did crude inventories jump in the US, but optimism that cheaper oil will boost global demand took a hit following the ratings agency, Moody’s, indicating this will not be the case for two years. While I admit the sudden bounce higher in price was unexpected, it was mostly based on profit-taking and hypothetical optimism that the surprising drop in US oil rigs might have meant oil producers were potentially acting to cut the aggressive over-supply.
Nonetheless, less production needs to actually be noticed otherwise the bulls will find themselves continually at risk to erasing gains. What the bulls can take courage from though is that the bounce higher did prove that there are traders who are interested in purchasing the commodity and ready to jump on the first indications of a production cut. This just needs to be seen and will also become a major factor in limiting how high the price can possibly climb.
The woes for commodities weren’t limited to punishment for the oil markets as Gold also slipped to a monthly low at $1221. The losses in Gold were correlated to USD strength, with the USD remaining supported after the impressive NFP last week reaffirmed optimism that the Federal Reserve will be raising US interest rates this year. In regards to when exactly, expecting an interest rate rise just after the middle of the year is not out of the question. Dollar demand saw the USD drive itself higher against all of its counterparts yesterday, with increased USD strength also the main catalyst behind the USDJPY jumping to its highest valuation in over a month at 120.436.
