Commodities Daily - April 23, 2020

> Oil prices stabilize on production decreases despite downbeat inventory data. Today, investors will be digesting an array of IHS Markit PMIs for April from Europe and the US, as well as US initial jobless claims. All of the releases are expected to be very downbeat. We continue to expect oil prices to remain in a downtrend and advise to sell oil on any spikes. Given that the June Brent contract will near expiry later next week, we see it retesting yesterday's low of $16/bbl. > Gold rallies amid government stimulus measures, though dollar strength is likely to cap further gains. These stimulus measures are boosting gold as governments are essentially printing money and injecting it into their economies. The same cannot be done with gold, which tends to outperform in times of elevated money supply and inflationary risks. We expect gold to test technical resistance today at $1,726/oz amid downbeat expectations for IHS Markit's global PMIs for April and a likely further setback in the US jobless claims figures. Further gains are likely to be capped by dollar strengthening and profit taking given such a strong rally over the past two days.OIL PRICES STABILIZE ON PRODUCTION DECREASES DESPITE DOWNBEAT INVENTORY DATAAfter plummeting $4/bbl to $16/bbl at the start of the day yesterday, the front-month Brent contract for June began to stabilize and then started trending higher toward the $22/bbl mark. The main reason for this uptrend was that it is becoming increasingly apparent that producers are starting to trim output. Yesterday, IEA Executive Director Fatih Birol said in a Bloomberg TV interview that non-OPEC+ nations pumped a whopping 2.2 mln bpd less oil in the past month, adding that these declines were driven by the US, Canada and Brazil. Furthermore, the energy regulator for the US state of Oklahoma, the fourth largest oil producing state in the country, said that producers could shut wells without losing their leases. Fear of losing leases is one of the reasons why producers have been reluctant to shut wells. This measure could help facilitate a production decline in the state. Another sign of strong production declines was the data from the preliminary Urals crude oil loading plan for May from the Baltic ports of Primorsk and Ust-Luga, which showed that Urals crude loadings for export are set to decline sharply over May 1-10 to 1.4 mln tonnes, compared with 2.2 mln tonnes during the same period in April. This comes as the new OPEC+ agreement takes effect on May 1. Even though these factors are in fact upbeat, it bears noting that in the current environment of plummeting demand and rapidly filling storages, production declines would have been happening even without the formal agreement. Some price support also came from renewed tensions between the US and Iran after the US president authorized attacks on any Iranian ships that appear to harass US vessels.Later in the day yesterday, attention turned to the EIA weekly report on US oil and refined product inventories, which showed yet another strong weekly build in oil stocks of 15 mln bbl to 518.6 mln bbl. This came amid yet another drop in refinery inputs, by 0.2 mln bpd to 12.45 mln bpd, and a 0.55 mln bpd decrease in exports to 2.9 mln bpd. Crude oil production fell 0.1 mln bpd to 12.2 mln bpd, while imports decreased by 0.74 mln bpd to 4.94 mln bpd. Furthermore, Reuters yesterday reported that Saudi Arabia is exploring re-routing millions of barrels of oil onboard tankers sailing to the US if President Donald Trump decides to block imports of crude from the kingdom. Inventories at Cushing, the WTI delivery hub, are nearly full, at almost 60 mln bbl, with much of the rest leased already. Gasoline stocks were up by a rather small 1 mln bbl to 263.2 mln bbl while distillate stocks swelled by 7.87 mln bbl to 136.9 mln bbl. Because more unwanted jet fuel is being blended into diesel (resulting in higher production) as aviation demand has plummeted, diesel stockpiles have been building strongly in the last couple of weeks. This has come even despite still-solid demand for diesel from trucks. Total stocks (oil and refined products combined) were up 25.5 mln bbl w-o-w and are now at their highest level since August 2016. The bearish report pressured Brent to the $20/bbl mark and it eventually settled at $20.37/bbl, fixing $1.04/bbl above the previous settlement.Today, investors will be digesting an array of IHS Markit PMIs for April from Europe and the US (manufacturing, services and composite data), as well as US initial jobless claims. All of the releases are expected to be very downbeat. We continue to expect oil prices to remain in a downtrend and advise to sell oil on any spikes. Given that the June Brent contract will near expiry later next week, we see it retesting yesterday's low of $16/ LD RALLIES AMID GOVERNMENT STIMULUS MEASURES, THOUGH DOLLAR STRENGTH IS LIKELY TO CAP FURTHER GAINSGold climbed almost $40/oz and fell just short of the $1,720/oz mark yesterday, boosted by the prospects of another wave of stimulus from governments and central banks in virus-hit economies. A US stimulus bill worth $484 bln is working its way through Congress. This bill includes $300 bln to top up the already-exhausted relief program for small businesses. Next week, policy makers from the Federal Reserve, ECB and BoJ will meet to assess their stances, raising the possibility of further assistance. These stimulus measures tend to boost gold, as governments are essentially printing money and injecting it into their economies. The same cannot be done with gold, which tends to outperform in times of elevated money supply and inflationary risks. We expect gold to test technical resistance today at $1,726/oz amid downbeat expectations for IHS Markit's global PMIs for April and a likely further setback in the US jobless claims figures. Further gains are likely to be capped by dollar strengthening and profit taking given such a strong rally over the past two