Commodities Daily - April 8, 2020

> Oil prices inch lower despite EIA report showing expected US oil production decline; EIA inventory data eyed today. In our view, the growing skepticism over the prospects of a new global output cut deal is likely to prevail today. The fact that if a deal is reached it appears that it will only be for a few months (thus insufficient to truly address the imbalance) is also negative, particularly amid deteriorating oil market fundamentals. We think Brent could retreat to $29.8/bbl if it breaks through support at $32/bbl. So far this morning Brent is trading near the upper end of the $32-33/bbl corridor.> Gold consolidates around $1,650/oz mark. Overnight, EU finance ministers failed to agree on a EUR500 bln plan to shore up the bloc's economies. The talks will resume on Thursday, but the news injected a degree of alarm on the markets. Today will see the publication of the minutes to the latest US FOMC meeting and US mortgage application data for the week to April 3. We expect gold to consolidate further, though we do not expect it to break technical resistance at $1,663/oz today.OIL PRICES INCH LOWER DESPITE EIA REPORT SHOWING EXPECTED US OIL PRODUCTION DECLINE; EIA INVENTORY DATA EYED TODAYAfter trading sideways within a narrow $33.2-34.2/bbl range yesterday, front-month Brent began to slide immediately after the Wall Street open, mirroring a downtrend in the S&P 500. It eventually settled at $31.87/bbl, fixing $1.18/bbl below the previous settlement. The downturn was partially attributable to growing uncertainty over the prospect of a new global OPEC+ deal. The US Department of Energy noted in a statement yesterday that US output is already falling even without government action, which is in line with the White House's insistence that it would not intervene in the private sector. Yesterday's EIA monthly oil market outlook estimated that US crude production this year will fall 0.47 mln bpd y-o-y (last month it forecast 0.76 mln bpd y-o-y growth and production averaging 12.99 mln bpd), averaging just 11.76 mln bpd (the most recent data showed output of 12.74 mln bpd in January). For 2021, the EIA projects US oil output averaging 11 mln bpd, which is 1.86 mln bpd below the late 2019 peak. This means that the US will likely present these natural decline figures at the G20 oil ministers' meeting later this week. However, if an OPEC+ deal is reached the free market mechanism could start driving production higher, which means the "natural decline" argument will not likely gain much traction within the OPEC+ group. We think OPEC+ will likely insist on preemptive production cuts from the US via a controlled production quota. Overnight, the API reported a surge in US crude stocks of 11.9 mln bbl to 473.8 mln bbl for last week (the EIA's last report estimated them at 469.2 mln bbl). The buildup came despite a 0.65 mln bpd decrease in imports and occurred amid a 1.1 mln bpd decrease in refinery runs. The refined product data was also bearish, showing a 9.4 mln bbl gain in gasoline stocks and a slight 0.17 mln bbl decrease in distillate inventories. Investors are now positioning themselves for the EIA report due today at 17:30 Moscow time. The Bloomberg consensus suggests a 9.25 mln bbl build in crude stocks, a 5.55 mln bbl increase in gasoline stocks and a 1.5 mln bbl gain in distillate stocks. We also expect the EIA to report a hefty crude oil stock build due to seasonally subdued refinery runs driven by a collapse in refined product demand. Also note that currently it makes almost no difference by how much inventories build - price volatility following recent EIA reports has been very low- given that investors are sure of inventory peaks in months to come.In our view, the growing skepticism over the prospects of a new global output cut deal is likely to prevail today. The fact that if a deal is reached it appears that it will only be for a few months (thus insufficient to truly address the imbalance) is also negative, particularly amid deteriorating oil market fundamentals. We think Brent could retreat to $29.8/bbl if it breaks through support at $32/bbl. So far this morning Brent is trading near the upper end of the $32-33/bbl LD CONSOLIDATES AROUND $1,650/OZ MARKGold market volatility remained low yesterday amid limited trading volumes, and quotes closed 0.8% lower. The US NFIB small business optimism index drew the most attention from investors. It slipped from 104.5 to 96.4 in March.Judging by PBoC data on China's gold and FX reserves, the country did not purchase any gold in March, as its gold reserves stayed at 62.64 moz, confirming our view that China is unlikely to be buying gold at levels above $1,600/oz.This morning, sentiment has soured amid reports that EU finance ministers have failed to agree on a EUR500 bln plan to shore up the bloc's economies. The talks will resume tomorrow. The measures under discussion would be one of the largest joint actions by EU finance ministers and would combine the proposals from various central banks to support a wide range of industries.Today will see the publication of the minutes to the latest US FOMC meeting and US mortgage application data for the week to April 3. We expect gold to consolidate further, though we do not expect it to break technical resistance at $1,663/oz