Commodities Update: gold prices dip below $2,300, oil prices fall about 1%

Gold prices

Gold prices fell below key levels in Asian trade on Thursday, as traders remained biased towards the dollar and wary of metals before key inflation data that is likely to factor into interest rates, while investors awaited U.S. inflation data for insights into how soon the Federal Reserve will cut interest rates. Gold for August delivery rose $28.30 to $2,397.70 per ounce. Silver for September delivery rose 85 cents to $31.69 per ounce, and September copper rose 12 cents $4.65 per pound.

Fed Governor Michelle Bowman on Wednesday reiterated her baseline view that “inflation will decline further with the policy rate held steady,” and that rate cuts will “eventually” be appropriate if inflation does move sustainably toward 2%.

Other precious metals moved lower, with spot silver down 0.1 per cent at $28.74. Platinum eased 0.3 per cent to $1,007.33 while palladium gained 0.2 per cent to $930.39.

With the coming critical data related to the economy, gold price will be highly sensitive to deviations in both inflation expectations and Federal Reserve policy outlooks. Investors are keenly watching for these developments to track what the future holds for gold and other metals together.

Gold analysis

Gold is currently experiencing a robust upward trend, although signals on the monthly and weekly charts are somewhat mixed. In the past four months, gold has shown notable candlestick patterns such as two inverted hammers with large upper wicks and a Rikshaw Man Doji, which also formed an inside candle. Despite these patterns, the weekly chart indicates increasing momentum as gold has repeatedly bounced back above $2300, suggesting potential for a move towards $2400 to test its previous peak.

In May, a bearish divergence was observed on the weekly RSI, although it has since moved out of the overbought zone. Conversely, the monthly RSI remains in overbought territory, indicating sustained strength over a longer period.

Crude oil prices

Crude oil futures fell about 1% Tuesday as the recent rally took a breather, with traders watching for summer fuel demand and tensions on the Israel-Lebanon border. Over the past two weeks, crude oil prices have been on an upward trend, reaching their highest level in almost two months. This surge is attributed to optimism surrounding increased summer fuel demand in the Northern Hemisphere, coupled with a reduction in US stockpiles. During this period, both Brent and WTI futures have seen a notable 7% rise in value. A report by JP Morgan Chase showed that fuel consumption surged to a post-pandemic high of 9.4 million barrels per day in the US in the week ending 14 June. Fuel consumption is expected to continue increasing as the US approaches the Independence Day holiday on 4 July, with 71 million Americans expected to travel.

United Arab Emirates crude oil production

The United Arab Emirates (UAE) is among the world’s ten largest oil producers. Approximately 96% of the country's estimated 100 billion barrels of proven oil reserves are concentrated in Abu Dhabi, positioning it as the sixth largest reserve holder globally. The UAE maintains an average daily production of 3.2 million barrels of petroleum and liquids.

The United Arab Emirates (UAE) has made substantial investments to expand its hydrocarbon production capacity and enhance midstream and downstream infrastructure in anticipation of future growth in this sector. However, over the last decade, actual production has averaged just under 3 million barrels per day (b/d) due to agreements on production cuts among OPEC and non-OPEC countries (collectively known as OPEC+), as noted in our Country Analysis Brief: United Arab Emirates.
According to the Middle East Economic Survey, the UAE's national oil company, the Abu Dhabi National Oil Company (ADNOC), aims to accelerate its target for increasing crude oil production capacity to 5 million b/d by 2027, advancing its previous goal by three years from 2030. To achieve its 2027 goal, ADNOC has increased upstream exploration and development. ADNOC increased planned spending on capital expenditures to $150 billion from 2023 to 2027 and unveiled expansion plans for increasing production.

Factors that drive oil prices high

• Geo-political Risks
  
  Geopolitical shocks can have an impact on oil prices through lower economic activity or higher risks to commodity supply. Regarding the conflict dynamics involving Israel and Hezbollah, tensions between the two have historically raised concerns about broader escalation in the Middle East, potentially involving Lebanon.
  
• Climate Risks
  
  Climatic variation can change fossil energy consumption, thereby influencing the fluctuation of oil prices. In addition to the anticipated rise in oil demand during the summer season, concerns over supply disruptions are mounting. The NOAA forecasts an 85% probability of an above-normal hurricane season in 2024, driven by near-record warm ocean temperatures.
  
• Economic Risks
  
  When economic events occur on a large enough scale, the cost of oil often changes. Anything with the potential to affect supply and demand also has the potential to impact oil prices. On one side, Chinese Manufacturing PMIs have recorded disappointing figures for oil demand potential. On the other side, declining inflation and economic growth figures in the U.S. might support oil demand potential, given the potential easing of monetary policies on the horizon. The upcoming FOMC minutes will be closely watched for insights on potential rate cut dates.
  
• OPEC Quotas
  
  Countries that have previously produced beyond OPEC quotas, such as Iraq, are aligning with their latest vows to meet supply cut quotas.

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