Commodities Daily - April 9, 2020

> Oil ticks higher despite bearish EIA report as Russia proposes a hefty production cut. In our view, today's OPEC+ online meeting (begins at 17:00 Moscow time) is likely to see substantial production cuts backed (Russia already proposed its cuts and we believe that Saudi Arabia is under pressure from the US), although the final outcome will be conditional on what happens at the G20 meeting tomorrow - specifically whether actual US production cuts are agreed to. This means that tomorrow's negotiations will be key, but it will also be when the risk of a deal collapsing will be at its highest. We think that if OPEC+ is successful today, Brent could rally toward $37/bbl, but it first would have to overcome technical resistance at $34.2/bbl.> Gold holds stable around $1,650/oz ahead of US labor market data. Yesterday, the World Gold Council reported a rise in gold-backed ETFs for 1Q20 that reflected a surge in purchases in March. The Fed published the minutes of its March 15 meeting, which had a neutral impact on investors. Today will be a short day in the US ahead of the Good Friday holiday. Nevertheless, a raft of economic data is scheduled, including the US PPI, jobless claims and wholesale inventories. Weak data would provide a fundamental boost for gold, and we expect it to test the technical resistance at $1,663/oz today.OIL TICKS HIGHER DESPITE BEARISH EIA REPORT AS RUSSIA PROPOSES A HEFTY PRODUCTION CUTAfter hovering below $33/bbl early yesterday, front-month Brent slid to $32/bbl once European trading got underway and was oscillating around this mark for most of the day. The release of the EIA inventory report generated some volatility: Brent briefly tested an intraday low of $31.5/bbl before returning back toward $32/bbl. The EIA reported a record high weekly increase in US crude stocks of 15.18 mln bbl to 484.4 mln bbl last week, above the Bloomberg consensus of a 9.25 mln bbl build and the API's reported 11.9 mln bbl increase. This came amid yet another strong decrease in refinery inputs by 1.26 mln bpd to 13.6 mln bpd and a 0.32 mln bpd decrease in exports to 2.83 mln bpd. A 0.17 mln bpd decrease in imports to 5.87 mln bpd and a very strong drop of 0.6 mln bpd in the crude oil production estimate to 12.4 mln bpd were insufficient to offset the overall build. The EIA's refined product data was also bearish: gasoline stocks rose 10.5 mln bbl to 257.3 mln bbl and distillate stocks climbed 0.47 mln bbl to 122.7 mln bbl. Total petroleum stocks (including oil but excluding US strategic petroleum reserves) were up a massive 32.98 mln bbl to 1.32 bln bbl. The highest they have ever reached was 1.375 bln bbl in August 2016 - at last week's build rate that level is less than two weeks ago. Also, gasoline demand hit its lowest level since 1990 and refinery runs fell to the lowest since 2011. Midway through US trading, Brent swiftly rallied toward $33.5/bbl after the news agency TASS, citing an unnamed Energy Ministry official, stated that Russia is ready to cut its oil output by 1.6 mln bpd, which is 0.6 mln bpd more than the general market consensus expected Russia to propose. Furthermore, Algeria's energy minister said he expected a "fruitful" meeting OPEC+ meeting today. Brent ended up settling at $32.84/bbl yesterday, fixing $0.97/bbl above the previous settlement. In our view, today's online OPEC+ meeting, which is set to begin at 17:00 Moscow time, is likely to see substantial production cuts backed (Russia already proposed its cuts and we believe that Saudi Arabia is under pressure from the US), although the final outcome will be conditional on what happens at the G20 meeting tomorrow - specifically, whether actual US production cuts are agreed to. This means that tomorrow's negotiations will be key but it will also be when the risk of a deal collapsing will be at its highest. Note that earlier this week Trump said that "if they {OPEC+} ask I'll make a decision" and noted that "I'll let you know Thursday evening." It is important to highlight that yesterday Kremlin spokesman Dmitri Peskov told reporters yesterday that natural US production declines driven by lower prices should not be viewed the same way as top-down restrictions. US officials had previously attempted to pass the natural declines off as production cuts. In our view, should the US be unable or unwilling to commit to government regulated production cuts after today's OPEC+ meeting while still insisting on Russian participation, the deal could be in jeopardy. In a letter to Texas state regulators, the president of Exxon's shale division yesterday said that the free market is "the most efficient means of sorting out the extreme supply and demand imbalances we are now experiencing." Chevron and Occidental Petroleum have also opposed a coordinated cut to Texas oil production. We think that if OPEC+ is successful today, Brent could rally towards $37/bbl, but it first would have to overcome technical resistance at $34.2/bbl. LD HOLDS STABLE AROUND $1,650/OZ AHEAD OF US LABOR MARKET DATAThe gold market was not particularly active yesterday, and quotes consolidated around the $1,650/oz mark as investors turned their attention to today's US jobless claims release (15:30 Moscow time) for the week ending April 4. The figure for the previous week was 6.7 mln, and the consensus for this week stands at 5.5 mln. The coronavirus was spreading quite rapidly last week, so we think the number could well come in above the consensus, which would provide a fundamental boost for gold.Yesterday, the World Gold Council reported a 298 tonne rise in gold-backed ETFs in 1Q20, the largest rise since 2016. Purchases reached 151 tonnes in March alone, led by European funds, which acquired 84 tonnes. This is particularly noteworthy as North American funds are typically the largest buyers and dominate the market. We think the spread of the coronavirus in Europe may have boosted physical demand for gold among European investors, given that 62 tonnes were acquired from UK-based funds.Today will be a short day in the US ahead of the Good Friday holiday. Nevertheless, a raft of economic data is scheduled, including the US PPI, jobless claims and wholesale inventories. We expect gold to resume its rise this afternoon and test technical resistance at $1,663/