WTI Fails Attempted Rebound Above $90; Gold Drops 0.85% on Strong US Jobs Data

Key Points

• WTI failed an attempted rebound back above $90 on Friday, despite finding some intra-day support from strong US jobs data.
• Traders refrained from chasing prices higher amid continued pessimism about demand outside the US and rising US inventories.
• Gold fell back sharply from near $1,800 to the $1,775 region on the stronger US dollar and higher US yields.

WTI Fails Attempted Rebound Back Above $90

The price of the front-month futures contract for the US benchmark for sweet light crude oil, West Texas Intermediary or WTI, closed about $0.50 higher on Friday near $88.50, having failed an earlier attempt to push back above the $90 level. Much stronger than expected US jobs data for July, which follows much stronger than expected US ISM Services PMI data for July on Wednesday, boosted optimism that the US economy is not currently in, or nearing recession, suggesting there is grounds for optimism about the US oil demand outlook.

But WTI was unable to hold above the $90 mark, as traders remembered back to data earlier in the week which showed a surprise rise in US crude oil and gasoline inventories last week, something that analysts said is unusual during “peak” driving season and a bearish sign for US oil markets. Oil traders also refrained from chasing prices higher amid continued concerns about the demand outlook outside of the US.

Eurozone Retail Sales and PMI survey data out this week showed that, comparatively, the Eurozone economy is much weaker than the US. Meanwhile, on Thursday the BoE outlined in its new Monetary Policy Report that it expects a five-quarter long recession to begin from Q4 2022. WTI thus ended the week just shy of $10 (or 10%) lower, its worst weekly performance since late March. Technicians continue to expect WTI to test support in the $85 area in the near future.

Strong Buck Weighs on Commodities

A sharp strengthening of the US dollar as traders priced in a more hawkish Fed tightening outlook also weighed on oil prices on Friday. When the US dollar strengthens, it makes USD-denominated commodities more expensive for international buyers, thus potentially hurting demand.

This factor also weighed heavily on gold prices on Friday, which slipped from earlier session highs in the $1,790s to end the week around $1,775, a loss of 0.85% on the day. A sharp rise in US bond yields on the more optimistic US economic outlook/hawkish Fed policy outlook also weighed on gold, given higher yields represent a higher “opportunity cost” of holding the non-yielding precious metal.

Copper prices, meanwhile, were more focused on optimism about the US economy and gained 2.26% and came close to hitting fresh multi-week highs above $3.60. US natural gas prices, meanwhile, fell slightly but remained above $8.0.