Crude Oil Slips as OPEC, IEA Cut Demand Outlook

 CRUDE OIL, GOLD, OPEC, IEA, COMMODITIES BRIEFING – TALKING POINTS:

• Crude oil ends an 8-day winning streak as IEA, OPEC cut demand outlook.
• Gold slips on better-than-expected US jobless claims figures.
• Stimulus progress will likely determine the short-term trajectory of both commodities

Crude oil ended its longest winning streak in two years overnight, after both the International Energy Agency (IEA) and Organization of the Petroleum Exporting Countries (OPEC) slashed their respective global demand outlooks. The IEA cut its forecast for oil consumption in 2021 by 200,00 barrels a day, stating that “renewed lockdowns, stringent mobility restrictions and a rather slow vaccine rollout in Europe have delayed the anticipated rebound”. OPEC also warned that global demand will rebound slower than previously thought.

However, both organizations continue to remain positive on the longer-term outlook for oil, with the IEA’s oil market division head, Toril Bosoni, stating that “we’re seeing that the outlook for the economy and oil demand in 2021 is looking brighter, despite the near-term weakness because of coronavirus”. Indeed, backwardation of the oil futures curve hints at further upside for crude prices in the coming weeks.

Oil futures curve created using Trading view

Meanwhile, gold prices fell just under 1% overnight, as better-than-expected jobless claims data appeared to diminish the argument for additional fiscal support. That being said, with House and Senate Democrats filing joint budget resolutions that will allow President Biden to pass the majority of his proposed $1.9 trillion stimulus package, gold’s downturn could prove short-lived.

The Federal Reserve’s dovish stance, and falling real rates of return, are also likely to underpin bullion. Fed Chair Jerome Powell reiterated that it is extremely unlikely that the central bank “even thinks about withdrawing policy support” in the foreseeable future. The upcoming economic docket is fairly light, with consumer sentiment out of the US a notable highlight. Fiscal aid developments will likely dictate the near-term trajectory of both commodities, with a weaker US Dollar probably limiting their respective potential downsides.