Commodities Daily - April 24, 2020

> Oil inches higher as production cuts remain in focus. Today will see the publication of US durable goods orders, the Michigan confidence survey and the Baker Hughes rig counts. Despite its recent uptick, we expect Brent to resume its general downtrend, first testing support at $20/bbl, with a break below likely causing a drop to $18.3/bbl and then open the way to Wednesday's low of $16/bbl. We think $16/bbl is more likely to be reached next week, as pressure on the front-month contract will continue to build as its nears expiry on Thursday, when it will converge with spot prices that currently stand close to $15/bbl.> Gold surges but again shies from the $1,740/oz mark. Gold failed to break past the $1,740/oz mark yesterday for the third time this month and this morning traced back to the $1,720-1,730/oz range. If gold can eventually overcome this psychological threshold today, this would clear the way toward $1,800/oz, a level last seen in 2011. However, should gold break below $1,720/oz today (which could happen given the strengthening dollar: EUR/USD has slid from 1.090 to 1.075 this week), it would then likely repeat the April 17-22 pattern, when it slid from $1,740/oz to $1,665/oz. It would, however, have break below technical support at $1,703/oz and $1,677/oz to do so.OIL INCHES HIGHER AS PRODUCTION CUTS REMAIN IN FOCUSFront-month Brent opened near the $20/bbl mark yesterday and jumped $3/bbl to an intraday peak of $23.2/bbl during the Asian trading session before trading around $22/bbl for the rest of the day. It eventually settled at $21.33/bbl, $0.96/bbl above the previous settlement. The uptrend was driven by increasing confidence that producers are starting to trim output. The major highlight yesterday was that Kuwait cut part of its oil supply ahead of the official start of the OPEC+ deal on May 1. The Kuwaiti oil minister said the country felt a responsibility to respond to market conditions. Meanwhile, Reuters reported that Azerbaijan's BP-led project will cut output sharply from May for the first time ever as the country moves to meet its OPEC+ commitments. Oil majors such as BP operating in FSU countries have previously been excluded from any government-imposed production decisions, as foreign investment has been deemed to be highly prized. This would certainly be a big precedent for other OPEC+ members such Nigeria, Angola, Iraq, Kazakhstan and Russia, where international oil majors have long escaped the cuts, citing contractual agreements. Under the new OPEC+ deal, Kuwait and Azerbaijan are obliged to cut production by 0.64 mln bpd to 2.17 mln bpd and by 0.16 mln bpd to 0.55 mln bpd, respectively. We think market forces and low prices are compelling international oil majors to cut production, willingly or not. These companies would certainly never have done so under normal market conditions, because as a business they want to maximize every last drop of oil that can be recovered from a field, and leaving oil in the ground is seen as a measure of last resort. These production cuts amid the collapse in demand and prices are very likely to have lasting consequences for several hundred old wells around the globe. These wells could lose reservoir pressure and hence struggle to return to full potential once restarted. Energy Aspects recently estimated that up to 4 mln bpd of supply could be at risk of this. This essentially means that a vast volume of supply will not be recovered immediately once prices recover and could take several years of investment to be rehabilitated. Thus in the long run, this factor is likely to assist the global oil market rebalancing along with the OPEC+ cuts. This task is enormous given surplus inventories of up to 1 bln bbl (which are still climbing rapidly at this time) will have to be run down before global inventory levels can return to pre-crisis levels.Today will see the publication of US durable goods orders, the Michigan confidence survey and the Baker Hughes rig counts. Despite its recent uptick, we expect Brent to resume its general downtrend, first testing support at $20/bbl, with a break below likely causing a drop to $18.3/bbl and then open the way to Wednesday's low of $16/bbl. We think $16/bbl is more likely to be reached next week, as pressure on the front-month contract will continue to build as its nears expiry on Thursday, when it will converge with spot prices that currently stand close to $15/ LD SURGES BUT AGAIN SHIES FROM THE $1,740/OZ MARKAfter rallying almost $40/oz and falling just short of the $1,720/oz mark on Wednesday, gold climbed all the way to $1,740/oz yesterday, benefiting from safe-haven demand amid a wave of downbeat economic data. The day's key macro release, US jobless claims, came in slightly better than the consensus forecast but were still far worse than the levels being recorded only weeks ago, with new claims at 4.4 mln and continuing claims at 16.0 mln. Other significant releases, including preliminary PMIs for developed markets, were almost uniformly more negative than expected. Meanwhile, EU leaders endorsed a $580 bln stimulus package that had already been announced, but they made only limited progress toward a larger and longer-term fiscal stimulus package. The US House of Representatives overwhelmingly approved a $484 bln coronavirus relief bill that will fund small businesses and hospitals and push the total spending in response to the crisis up to almost $3 trln. Stimulus measures such as these 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.Gold failed to break past the $1,740/oz mark yesterday for the third time this month and this morning traced back to the $1,720-1,730/oz range. If gold can eventually overcome this psychological threshold today, this would clear the way toward $1,800/oz, a level last seen in 2011. However, should gold break below $1,720/oz today (which could happen given the strengthening dollar: EUR/USD has slid from 1.090 to 1.075 this week), it would then likely repeat the April 17-22 pattern, when it slid from $1,740/oz to $1,665/oz. It would, however, have break below technical support at $1,703/oz and $1,677/oz to do