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While gold recovers from testing the 20-month moving average at $1,680, West Texas Intermediate (WTI) falls to the $94s

Daniel Rogers

Jul 22, 2022 14:54

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On Thursday, oil prices dropped significantly. Futures contracts on West Texas Intermediary (or WTI), the price benchmark for sweet light crude oil in the United States, were trading in the $96s, down close to $4.0 a barrel for the day. As expected, prices stabilized over $94.50, close to their 200-day moving average.


There has been a confluence of negative events in the last day or so that have weighed on the oil markets. On Thursday, gas shipments from Russia's state-owned gas producer/exporter Gazprom to Germany via the Nord Stream 1 pipeline resumed, easing some of Europe's energy crisis concerns. Gas rationing and a scramble for other fossil fuels, such as oil, would result if Russia decided to cut off gas supplies to Europe.


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Meanwhile, information released on Wednesday indicated an unexpected increase in gasoline stocks in the United States last week. Data shows "US gasoline consumption is failing to move into high gear during the peak summer season," according to one expert. Others hypothesize that the demand destruction caused by the recent record high prices at the pump in the United States is to blame.


Many oil fields in Libya declared a force majeure last week, but production resumed on Thursday, according to market experts, alleviating fears about a worldwide supply crisis. Production in Libya has been erratic in recent years due to the country's political unpredictability.


Natural gas prices in the United States saw little movement after reaching multi-week highs in the low $8.0s earlier in the day.


Yields in the United States dipped across the curve on Thursday following the release of data showing that the number of Americans filing for unemployment benefits surged to its highest level in eight months. Despite this, claims remained at healthy levels. Also, the Philadelphia Federal Reserve's manufacturing survey hit a 10-year low in July (excluding the 2020 pandemic shock).


Even while corporate results have been mainly cheerful so far barely over a week into the reporting season, Thursday's dismal news seems to have contributed to a pick-up in US slowdown worries, as seen by the bond market's reaction. Gold rose when US rates fell because the precious metal is "opportunity cost" sensitive (like monetary commodities).


Although it fell to a low of just above $1,680 during Asia Pacific trading, 2021 lows, spot gold has since recovered strongly to the mid-$1,710s. With the global growth picture dimming and central banks actively hiking interest rates, gold is being squeezed from all sides. Spot gold prices are presently down more than 5% this month as the negative impact of rate rises as central banks struggle to confront inflation has been the stronger factor.