Oil prices rose overnight but trading in recent sessions has become quite choppy in a trend ANZ Banking Group senior commodity strategist Mark Pervan expects will continue, particularly as the weekly numbers from the US Department of Energy gave mixed signals as to the market’s outlook.

Shorter-term Pervan suggests much will depend on the direction of the US dollar, as if the currency were to strengthen he sees scope for some profit taking in the oil market given the early indications are for a weak driving season in the US and as there are no signs yet of any hurricane activity in the Gulf of Mexico.

Over the next few months Pervan expects prices will continue to ease given weaker demand from the US and potentially from the rest of the world, though with Chinese demand likely to remain strong he suggests the downside is somewhat limited.

Gold may find the going tougher given potential for profit taking in the oil market and a stronger US dollar, which Pervan notes is gaining support from increased expectations interest rates in the US will move up as inflation increasingly becomes an issue.

Medium-term the outlook for gold is similar to that of oil in Pervan’s view as he expects the price of the metal will drift lower in coming months as the US dollar finds a bottom and as any signs of stability in equity markets reduce gold’s attraction as a safe haven.

If prices become less volatile he expects trade buying of the metal will also increase, which in conjunction with modest central bank sales should act to limit the extent of any falls.

The recent strength in oil prices has weighed on demand for base metals and with continued signs Chinese demand is slowing Pervan sees scope for further falls in the short-term, especially if traders using base metals as a US dollar hedge get spooked by the prospect of intervention designed to lift the greenback.

Pervan expects prices across the sector to be choppy in coming months with nickel the best bet given LME supplies of the metal have fallen over the past three weeks and with scope for the disruption to gas supplies in Western Australia to further limit output. As well, he suggests aluminium could gain if oil prices remain elevated.

Coal prices may see some profit taking if oil falls in coming sessions, while Pervan also notes a return to normal operating conditions at the Newcastle port may act as a trigger for traders to take some money off the table.

With oil tipped to fall in coming months Pervan sees coal prices also easing, though again he doesn’t expect prices will fall significantly as infrastructure constraints in Australia in particular will contain any downside by limiting supply at a time when Asian demand remains strong.

While not expected upside to coal prices in coming months is a possibility given the combination of switching from higher quality thermal coal into higher priced semi-soft coal and slowing export volumes from both South Africa and Vietman.