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Oil
Oil markets continue to experience highly choppy price action, driven this week by Fed uncertainty, low liquidity and confusing messages from OPEC+ members about new output cuts, which have spread uncertainty in oil markets and left traders doing little more than betting yes or no on a production cut heading into the Jun 4 OPEC meeting.
There is no secret that Saudi Arabia wants oil prices as high as possible; however, will a June intervention make any difference to the likely downward trajectory of oil prices in the next few months, just as happened after the surprise April output cut?
Russian oil is the biggest wild card in the oil market supply purview. While OPEC could remain highly compliant with its threat to cut, the ongoing dynamic concerning Russian supply is a bearish risk for oil.
Of course, Russia wants OPEC members to push oil prices as high as possible for no reason than to undercut them at prices better than the capped prices at which it is officially allowed to sell oil. There are plenty of willing buyers for discounted Russian crude, as neither China nor India cares about existing U.S.-led sanctions against Russia. But the main point is that the US doesn’t care either about Russian oil going to China or India so long as oil prices remain below $80 bbl.
Gold
Unlike oil, a recessionary outlook would typically be good for gold. But recently, gold prices have fallen as the situation with the regional banks in the US had proved to be far less concerning than initially thought by the market. Recent data suggest that even a tiny expected hit to US growth may be pessimistic. Nonetheless, we like gold from here as we move past the market Fed hawkishness preception in June.
China and EM central banks continue to purchase gold rapidly, a trend that we expect to continue to dominate gold demand on the back of elevated geopolitical risks and de-dollarisation trends.
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