Commodities Daily - April 16, 2020

> Oil prices slide on bearish IEA and EIA reports; OPEC outlook eyed. This morning, investors in Asia were digesting news that the US Department of Energy has unveiled a plan whereby the government will be buying yet unproduced crude as it usually does for strategic reserves to help alleviate the inventory glut that is weighing on oil prices. The news provided a brief boost to oil this morning, which edged higher to $28.5/bbl, but it failed to break through this level. Even though this is a workable idea we think it will struggle to pass Congress. Nevertheless, the news could be slightly supportive for Brent today, which to us looks neutral within the $27.3-29.0/bbl range. Today, investors will eye the monthly OPEC oil market report, which is likely to be released around 15:00-16:00 Moscow time.> Gold rally takes a pause on profit taking as stock markets move lower and dollar strengthens. Today will see the publication of eurozone industrial production, US building permits, US housing starts and the Philadelphia Fed business outlook. But trumping all that will be US jobless claims. The consensus expects 5.5 mln initial jobless claims and 13.3 mln continuing claims, which would take unemployment close to 20%. From a technical perspective, gold is still likely to retreat back to the $1,675-1,701/oz range it was trading within not long ago.OIL PRICES SLIDE ON BEARISH IEA AND EIA REPORTS; OPEC OUTLOOK EYEDAfter trading near $30/bbl early yesterday, front-month Brent began to slide, falling to $28/bbl early in European trading hours amid a bearish IEA monthly oil market report, stock market correction and dollar strengthening. On the matter of coordinated oil purchases of its member countries, the IEA said yesterday that it was still waiting for more details on certain planned production cuts and proposals to use strategic storage. The IEA's latest report forecasts a whopping 9.3 mln bpd y-o-y decline (to 90.55 mln bpd) in oil demand in 2020, which would bring oil consumption down to a level not seen in 25 years. Even as recently as last month, the agency still expected a tiny 0.09 mln bpd decline in demand this year. The US is still expected to consume the most oil, at 18.04 mln bpd (down from the 20.57 mln bpd estimated last month), followed by China at 12.77 mln bpd (down from 13.4 mln bpd) and then Europe, (11.93 mln bpd, down from 13.93 mln bpd). Thus, it comes as no surprise that US and European oil demand being disrupted as much as it has is resulting in a drop in oil prices. The agency also highlighted that there is no feasible agreement that could cut supply by enough to offset such near-term demand losses and that April may well have been the worst month. This is also in line with what we were saying during the recent OPEC+ negotiations that, given the scale of the global lockdowns and inventory builds, the cuts would not be able to boost prices in April or May. We also noted that the longer-term prospects have become much brighter, as the revival of OPEC+ means that once demand recovers, output cuts can be used to speed up the market rebalancing process. Later in the day yesterday, attention turned to the EIA weekly report on US oil and refined product inventories, which showed a record high weekly build in oil stocks of 19.2 mln bbl to 503.6 mln bbl. This came amid yet another drop in refinery inputs by 1 mln bpd to 12.6 mln bpd and despite a 0.6 mln bpd increase in exports to 3.4 mln bpd. Imports decreased by 0.2 mln bpd to 5.68 mln bpd, while crude oil production fell 0.1 mln bpd to 12.3 mln bpd. Gasoline stocks swelled by 4.9 mln bbl to 262.2 mln bbl and distillate stocks by 6.3 mln bbl to 129 mln bbl. Total stocks (oil and refined products combined) were up 21.8 mln bbl w-o-w. The previous report had shown a 33 mln bbl weekly build. The bearish report pressured Brent to an intraday low of $27.2/bbl and having confronted the area of technical support (we yesterday outlined $27.3/bbl as the support level) it bounced closer to the upper end of the $27.5-28.5/bbl range. It eventually settled at $27.69/bbl, fixing $1.91/bbl below the previous settlement.This morning, investors in Asia were digesting news that the US Department of Energy has unveiled a plan whereby the government will be buying yet unproduced crude in the same manner that it usually does for strategic reserves to help alleviate the inventory glut that is weighing on oil prices. When this oil is extracted and sold the proceeds will go to the Treasury. The news provided a brief boost to oil this morning, which edged higher to $28.5/bbl, but it failed to break through this level. Even though this is a workable idea we think it will struggle to pass Congress, as the Democrats are likely to seek to offset the purchases with investments in clean energy. It will also require billions of dollars in appropriation from Congress. In the meantime, US inventories will only rise. Nevertheless, the news could be slightly supportive for Brent today, which to us looks neutral within the $27.3-29.0/bbl range. Today, investors will eye the monthly OPEC oil market report, which is likely to be released around 15:00-16:00 Moscow LD RALLY TAKES A PAUSE ON PROFIT TAKING AS STOCK MARKETS MOVE LOWER AND DOLLAR STRENGTHENSEarly yesterday, gold resumed its retreat from the $1,747/oz mark it reached on Tuesday and slid to $1,710/oz early in European trading. After failing to break below this mark, it began to consolidate within a wide $1,710-1,725/oz range before failing to break below $1,710/oz once again during US trading hours. It continued to move in step with the stock market and experienced headwinds from a stronger dollar. Very downbeat US retail sales data for March and weak US industrial production figures for the same month weighed on sentiment. The former plunged 8.7% m-o-m (the biggest monthly decline on record), while manufacturing output dropped 6.3% (the biggest decrease since February 1946), implying a US economy in freefall. Today is the final day of the joint IMF-World Bank meeting. The US administration could announce initial plans to roll back some self-isolation measures, but whether it is too early to do so and might lead to a second wave of contagion is being hotly debated in the media. Today will also see the publication of eurozone industrial production, US building permits, US housing starts and the Philadelphia Fed business outlook. But trumping all that will be the US jobless claims data. The consensus expects 5.5 mln initial jobless claims and 13.3 mln continuing claims, which would take unemployment close to 20%. From a technical perspective, gold is still likely to retreat into the $1,675-1,701/oz range it was trading within not long ago. Early tomorrow morning, Chinese 1Q20 GDP and industrial production and retail sales for March are due, with the consensus forecasting drops of 6.0-12.5%