Commodities Daily - April 15, 2020

> Oil slides on further inventory build; IEA report and EIA data eyed. Before the EIA's weekly update on US oil inventories, investors will eye the IEA's monthly report. They expect details from the IEA on a potential proposal to its member countries to purchase crude for their strategic reserves. We think that almost all tanks (commercial and SPR) will fill up throughout 2Q20 anyway as demand craters, even with the announced OPEC+ cuts. In our view, Brent is likely to test support at $29/bbl today. A break below could open the way to $27.3/bbl.> Gold eases as stock markets weaken and dollar strengthens. This morning, gold has continued to mirror stock markets, which have reversed course and are trending lower amid a strengthening dollar. If this trend continues gold is likely to retreat into $1,675-$1,701/oz technical it oscillated within not long ago.OIL SLIDES ON FURTHER INVENTORY BUILD; IEA REPORT AND EIA DATA EYEDAfter hovering above $32/bbl during the Asian trading session yesterday, front-month Brent began to slide. It remained on the decline for most of the day despite positive stock market momentum and dollar weakening. It eventually settled at $29.60/bbl, fixing $2.14/bbl below the previous settlement. Oil prices have been steadily falling, as the demand-side losses and fears have outweighed the OPEC+ supply cuts, resulting in continuing inventory buildups. During the second half of the day, the focus turned to the Texas Railroad Commission hearing, where the state energy regulator listened to US oil executives' opinions on whether the state should introduce a mechanism to cut oil output by about 1 mln bpd. Two votes are needed from the three-member commission for the proposal to pass. Some of the largest and most influential oil companies operating in the state, such as Exxon Mobil, Chevron and Occidental Petroleum, remain strongly opposed to imposing output limits. In our view, the commission is likely to decide to let market forces resolve the oversupply issues given that production is already falling, the complexity of the cutting mechanism, the commission's limited resources, the limited time to implement the mechanism and the high risk of doing more harm than good with such an abrupt move. One highlight from the hearing was that the Plains All American Pipeline president told regulators that storage would be filled by mid-May. He said, "We (as a pipeline system) can't act as a storage facility for everybody that doesn't have a market."Speaking of inventory issues, overnight the API reported that US crude stocks surged 13.1 mln bbl to 486.9 mln bbl last week (the EIA's last report put them at 484.4 mln bbl). The buildup came despite a 0.83 mln bpd drop in imports and occurred amid a 1.2 mln bpd decrease in refinery runs. The refined product data was also bearish, showing a 2.2 mln bbl gain in gasoline stocks and a 5.6 mln bbl increase in distillate inventories. Investors are now positioning themselves for the EIA report due today at 17:30 Moscow time. The Bloomberg consensus suggests a 12.7 mln bbl build in crude stocks, a 7.3 mln bbl increase in gasoline stocks and a 1.6 mln bbl gain in distillate stocks. We also expect the EIA to report a hefty crude stock build due to subdued refinery activity given the collapse in refined product demand. We note that investors are almost certain that inventories will continue to build in the months to come, so they will likely focus on whether total stocks (oil and refined products combined) grew at a faster pace than last week.Before the EIA's weekly update on US oil inventories, investors will eye the IEA's monthly report. They expect details from the IEA on a potential proposal to its member countries to purchase crude for their strategic reserves. The agency has never coordinated such purchases before and has no mandate to do so. In our view, individual countries are likely to decide on their own. We remain skeptical that the IEA (which can only propose policies to member countries, who then debate and vote on them) will be able to elicit 200 mln bbl of strategic petroleum reserve purchases globally (as previously proposed by the Saudi energy minister). We think that almost all tanks (commercial and SPR) will fill up throughout 2Q20 anyway as demand craters, even with the announced OPEC+ cuts. In our view, Brent is likely to test support at $29/bbl today. A break below could open the way to $27.3/ LD EASES AS STOCK MARKETS WEAKEN AND DOLLAR STRENGTHENSGold jumped by more than $35/oz yesterday morning and reached an intraday high of $1,747/oz in early US trading. For some time now, gold has somewhat counterintuitively been mirroring the S&P 500 (the former being a safe-haven asset and the other consisting of risk assets), and this was also the case yesterday. In the current climate of significant unknowns and extremely high volatility, investors brave enough to go long on risk assets have simultaneously expanded their exposure to gold to provide protection and resilience amid the risk of high inflation stemming from rates at zero once the crisis is over. However, we expect the stock market and gold to decouple in the coming weeks amid 1Q20 US corporate earnings, as investors are unlikely to be willing to give up on their exposure to gold. Three more large US banks report results today, which will provide more insight into the impact of the coronavirus on the real economy. However, a significant risk to our view is that if the S&P 500 were to undergo an abrupt correction as happened in early March, investors could rush to sell gold (which has jumped $255/oz since mid-March) to cover their losses.This morning, gold has continued to mirror stock markets, which have reversed course and are trending lower amid a strengthening dollar. If this trend continues, gold is likely to retreat to the $1,675-$1,701/oz technical range it was trading within not long ago. Meanwhile, the IMF/World Bank meeting continues today, while NATO defense ministers and EU health ministers are due to meet, and a range of leading global financial figures are due to speak, including IMF Managing Director Kristalina Georgieva. Data-wise, today will see US industrial production, the Fed Beige Book and the Empire State Manufacturing