Commodities Week Ahead: Oil Eyes OPEC Amid U.S. Rates Poser; Gold On Jobs Watch

Crude markets are wedged between Wednesday’s monthly meeting of the OPEC oil producers alliance and last week’s fresh tick-up in U.S. inflation, which again raises the question of whether the Federal Reserve is ready to back down on its aggressive rate hikes.

U.S. jobs data for July, scheduled for Friday, will be a foreteller of the central bank’s actions. Forecasts call for the addition of another solid-yet-consolidating job after June, despite the economy technically being in a recession and more layoffs in the Big Tech sector, which happens to be one of America’s biggest employers.

Analysts expect the economy to have added 250,000 jobs in July, moderating from June’s pace of 372,000, while the unemployment rate is expected to hold steady at a historic low of 3.6%.

The U.S. will also release data on JOLTS job openings on Tuesday. While job openings have been easing in recent months, they are expected to remain at elevated levels.

A smaller-than-expected jobs number for July could bolster the view that the Fed may not be as aggressive as expected regarding interest rate hikes. Last week, Fed Chair Jerome Powell said the central bank’s September rate decision would be data-dependent.

Notwithstanding the upcoming employment data, Minneapolis Fed President Neel Kashkari told the New York Times in an interview that markets had gotten ahead of themselves in anticipating that the central bank would soon be ready to back off from rate hikes.

Kashkari’s comments came after the Fed’s preferred inflation indicator, the Personal Consumption Expenditure Index, showed a 6.8% growth in the year to June—the first rebound of its kind in three months.

Investors will also get a chance to hear from several Fed officials this week, including Charles Evans of Chicago, James Bullard of St. Louis, and Loretta Mester of Cleveland. Their comments will be watched closely for indications that a smaller rate hike may be on the cards in September after recent data pointing to economic weakness.

Given mounting fears over the prospect of a recession, market watchers will also be paying particular attention to the Institute of Supply Management’s manufacturing PMI on Monday and the ISM services PMI on Wednesday--both expected to confirm that the economy is slowing.

Despite the likelihood of the Fed staying aggressive with rates—it has raised them four times this year to a range of 2.25-2.5% from nearly zero in February—the dollar fell again Monday.

The Dollar Index, which pits the greenback against six major currencies, sank to a six-week low versus the yen as it hovered under 106 versus its July 14 high above 109.

Gold particularly watches the dollar and inflation, making the July jobs data critical for any pivot in the precious metal’s prices.

Oil also closely tracks the monthly U.S. employment report, given the nexus between energy prices and worker commutes.

Stephen Innes, managing director at commodity fund manager SPI Asset Management, said:

“Energy traders have little in the way of new oil newsflows to whet their appetite; hence, they have moved on to the OPEC+ meeting on August 3. From our vantage point, however, the OPEC + meeting doesn’t seem likely to rock the boat and be a significant oil price catalyst.

The broader focus remains on risks to demand from recessionary fears, which looks increasingly probable.”

West Texas Intermediate, the U.S. crude benchmark, was down in Monday’s Asian trading at $97.44 per barrel, off $1.18, or 1.2% by 2:33 PM in Singapore (2:33 AM New York).

London-traded Brent, the global benchmark for oil, slid 74 cents, or 0.7%, to $103.23/

OPEC+—the alliance tying the 13-member Saudi-led Organization of the Petroleum Exporting Countries with 10 other oil producers steered by Russia — meets Wednesday to decide on September output quotas for the nations in the group.

Wire reports so far indicate that the 23-nation OPEC+ will likely leave production as it is or raise it just slightly for September.

Prior to President Joe Biden’s visit to Saudi Arabia last month, OPEC+ had already bumped up production by 50% from June levels to reach almost 650,000 barrels per day for July and August. If it maintains that for September or raises it by between 10,000 or 20,000 bpd, it would still be good from the alliance’s perspective and a win — albeit a measured one, for Biden.

Most importantly, OPEC+ shouldn’t slash production at this point. And there’s a threat of that happening if crude prices, which fell from Ukraine-invasions highs of $140 in March to below $100 last week, continue falling.

As it stands, OPEC+ would have unwound all its historic pandemic-era production cuts by next month. It’s now at a crossroads where output is concerned.

Benchmark gold futures on New York’s Comex was little changed in Monday’s Asian trading, slipping $1.85, or 0.1%, to $1,779.95.

Gold could continue rising until $1,800 if the dollar and bond yields retreat further from projections for softer Federal Reserve rate hikes through the remainder of the year, said Ed Moya, an analyst at online trading platform OANDA.

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis. For neutrality, he sometimes presents contrarian views and market variables. He does not hold positions in the commodities and securities he writes about.