Commodities Daily - April 10, 2020

> Oil slides despite OPEC+ principal agreement on record production cuts. Demand declines are likely to still outpace proposed supply cuts, and it is still possible that we will hit tank tops by mid-May (prices could then slump to induce oil production shut-ins), which the OPEC+ cuts (starting in May) will not be able to prevent. Investors seemed to realize that yesterday once details of the deal started to emerge, which resulted in a plummet in oil prices. These cuts will not be able to boost prices in April or May, given the scale of inventory builds we are observing, but may provide a floor to Brent futures at around $20/bbl in the medium term. The longer-term prospects, however, have suddenly became much brighter as the revival of OPEC+ means that once demand recovers, output cuts can be used to speed up the market rebalancing process.> Gold just short of $1,700/oz mark. Weak US macro data, together with new measures announced by the Fed to support the financial system and a fiscal support package being agreed on by EU finance ministers, helped gold to push sharply higher yesterday. It managed to break through a couple technical resistance levels and is quoted at $1,692/oz as we write. We do not expect high volatility today, seeing gold consolidating in a range of $1,680-1,700/oz.OIL SLIDES DESPITE OPEC+ PRINCIPAL AGREEMENT ON RECORD PRODUCTION CUTSAfter starting the day hovering just below $34/bbl, front-month Brent then embarked on a rollercoaster ride of troughs and peaks amid mixed news flow both preceded the OPEC+ meeting and emerged during it. After Brent spiked to an intraday high of $36.4/bbl in early in US trading hours it the began to continuously plummet and eventually ended the day trading within $31.2-32.2/bbl range, settling $31.48/bbl fixing $1.36/bbl below the previous settlement. NYMEX WTI and ICE Brent futures trading closed for Good Friday today.After a long video conference, OPEC+ agreed in principle to a headline 10 mln bpd of output cuts - but from the inflated October 2018 baseline. Given that OPEC+ was producing about 4.7 mln bpd more in October 2018 than in March 2020 (the last active month of the previous OPEC+ agreement) this means that the actual cuts that will be required are substantially less. However, producers that are exempt now (Iran, Libya and Venezuela) were counted as OPEC+ production (3 mln bpd) for the October 2018 figure, meaning that the real cut will be closer to 8.3 mln bpd. The cut will run for two months (May and June), after which the group will gradually start to raise output (the cuts will ease to 8 mln bpd between July and December and to 6 mln bpd between January 2021 and April 2022) in line with a projected recovery in demand as social distancing measures are expected to ease. These extended production cut figures are surely to be reviewed and revised regularly. Few details have been confirmed, but indications are that most producers have committed to cutting by 23%, with Saudi Arabia and Russia adopting matching baselines and reducing output to around 8.5 mln bpd. The alliance is also seeking reductions of as much as 5 mln bpd from the G20 (which is holding its meeting today), although, according to delegates, it will go ahead with the cuts even if the G20 doesn't join in. This would be a move away from the hawkish stance that OPEC+ had taken in the lead-up to their meeting. If this is officially confirmed and the deal is not contingent on the US mandating cuts, then we would expect the overall compliance and discipline from OPEC+ to be poor. Meanwhile, we agree with Energy Aspects that the real cuts will simply reflect each producer's ability to place barrels in refineries (domestic and international) once global storage is used up.Demand declines are likely to still outpace proposed supply cuts, and it is still possible that we will hit tank tops by mid-May (prices could then slump to induce oil production shut-ins), which the OPEC+ cuts (starting in May) will not be able to prevent. Investors seemed to realize that yesterday once details of the deal started to emerge, which resulted in a plummet in oil prices. These cuts will not be able to boost prices in April or May, given the scale of inventory builds we are observing, but may provide a floor to Brent futures at around $20/bbl in the medium term. The longer-term prospects, however, have suddenly became much brighter as the revival of OPEC+ means that once demand recovers, output cuts can be used to speed up the market rebalancing LD JUST SHORT OF $1,700/OZ MARKInvestors yesterday were eagerly awaiting macro data from the US, especially the US jobless claims figures for the week ending on April 4, which ended up showing 6.6 mln initial claims. This topped the consensus of 5.5 mln by a fairly wide margin and pointed to further deterioration in the US labor market. Also discouraging were US wholesale inventories (down 0.7% in February, versus an expected 0.5% decline) and PPI (-0.2% m-o-m in March).An even bigger boost to gold prices came from the massive support packages announced in the US and Europe. The Fed unveiled measures yesterday evening that will provide $2.3 trln of support to the US economy and help maintain stability in the financial system. EU ministers, meanwhile, managed to reach an agreement on a EUR540 bln economic support package including a EUR100 bln employment insurance fund, EUR200 bln for European investment banks to provide to businesses and credit lines totaling EUR240 bln from the European Stability Mechanism. The announcement of further massive stimulus provided a tailwind for defensive assets, helping gold add $30/oz over the course of the US session on thin volumes. Markets in Europe and the US are closed today for Good Friday. We expect volatility to be low and see gold consolidating in a $1,680-1,700/oz