Crude oil prices declined despite a larger-than-expected drop in weekly inventories. Stockpiles fell by 2.55 million barrels, topping estimates for a 2.25 million drawdown. The WTI contract had been edging lower as risk assets corrected lower (as expected) when the inventories report crossed the wires, curiously amplifying selling pressure.

An unexpected build in gasoline reserves may have accounted for the markets’ seemingly counter-intuitive response. Rising stocks of processed product hint that the draw on crude stockpiles may reflect over-optimistic refiners slow to adjust to tepid end demand. This may warn that a swelling glut at the consumer end will echo upstream before long, triggering another prolonged selloff as markets readjust.

Looking ahead, the Bank of England rate decision is in the spotlight. A narrow majority of economists polled by Bloomberg (31/54) expect the central will reduce the benchmark lending rate, with most projecting a 25bps cut to a record–low 0.25 percent. Risk appetite is looking decidedly buoyant ahead of the announcement: the British Pound is rallying alongside stocks as bonds and gold prices decline.

Seeing Sterling rise in anticipation of monetary easing seems telling. Investors worried about knock-on effects from post-Brexit instability may see a cut as ultimately good for UK financial health and that of the world at large. It seems reasonable that this would matter more than yield considerations at this stage.

This means a cut will probably feed risk-on momentum boosting crude oil and punishing gold. OIS-implied policy bets suggest traders have priced in a mere 20 percent chance of a cut, so follow-through seems probable if Mark Carney and company opt to pull the trigger. Needless to say, an MPC vote to remain on hold may inspire the opposite result, rekindling market-wide risk aversion.

GOLD TECHNICAL ANALYSIS – Gold prices corrected higher after suffering the largest daily drop in two months. Near-term resistance is at 1353.04, the 14.6% Fibonacci expansion, with a daily close above that exposing the 23.6% level at 1368.84. Alternatively, a reversal back below the July 13 low at 1327.42 sees the next downside barrier at 1308.00, the 38.2% Fib retracement.