WTI crude oil futures fell Friday below the $72 per barrel level, where they last traded on June 18. They now appear to be on track for a weekly decline of about 4 percent, which would be the biggest weekly drop since March.
The price of oil does not seem to be helped by oversupply concerns. Saudi Arabia and the United Arab Emirates reached a compromise this week, paving the way for OPEC+ to finalize a deal that would allow the UAE to increase its baseline production to 3.65 million barrels per day.
Concerns about the rapid spread of the Delta variant of the COVID-19 virus in Asia also grew, and Goldman Sachs cut its second-half economic growth forecast by an average of 1.8 percentage points in Southeast Asia as restrictions tightened.
A large drop in U.S. crude oil inventories did little to support prices, as a rise in gasoline inventories in the week of the Fourth of July holiday, when the number of drivers on the road in the U.S. increases, raised fresh concerns about demand.
Downgraded forecast for Japan
The Bank of Japan also lowered its economic growth forecast during its monetary policy meeting. On Friday, July 16, the BoJ left its key short-term interest rate unchanged at -0.1 percent and maintained its target for the yield on 10-year Japanese government bonds at around 0 percent.
In its quarterly report, the central bank lowered its GDP forecast for the current year to 3.8 percent from an earlier 4 percent in April, impacted by the COVID-19 outbreak. However, the board maintained its view that the economy is heading for a moderate recovery, raising its growth forecast to 2.7 percent from 2.4 percent as vaccinations accelerate next year.
Three factors supporting gold prices
The gold market tested the $1,820 per ounce level on Friday and bullion seems to be on track to gain 1 percent for the week, which would be the fourth consecutive weekly gain.
Gold appears to be rising in price after dovish comments from Federal Reserve Chairman Jerome Powell and concerns about global growth and the spread of the delta variant of the coronavirus, as well as due to record negative real interest rates in the US.
Powell said inflation is likely to remain elevated in the coming months, temporarily boosted by the base effect, and then soften. The Fed chief stressed that there is still a long way to go before the labor market fully recovers from the pandemic's impact, adding that the U.S. central bank is in no hurry to scale back crisis-ridden financial policies.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
77.31% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.