Commodities Daily - August 10, 2021

> Oil dips, then recovers ahead of today's monthly EIA report. This morning, Brent continues to hover above $69/bbl as investors look ahead to the EIA monthly oil market report and API's weekly US oil and refined product inventory data. In our view, the EIA may slightly downgrade its global oil demand outlook due to the coronavirus flare-ups; however, we expect demand to remain strong enough to exceed supply for the rest of the year. We think Brent is likely to continue targeting its 100-day moving average, which is near $70/bbl, amid tailwinds from the API report, which is due overnight.> Gold declines, awaiting another trigger. Gold slid from $1,765/oz to $1,730/oz yesterday as the 10y US Treasury yield climbed from 1.30% to 1.32%. US job openings data came in above the consensus. Bullion is trading near $1,735/oz as we write. Today, markets await the US NFIB small business optimism index for July and the ZEW eurozone survey for August. We expect gold to retest support at $1,725/oz. OIL DIPS, THEN RECOVERS AHEAD OF TODAY'S MONTHLY EIA REPORTYesterday, Brent fell almost $2.7/bbl to as low as $67.6/bbl, with headwinds coming from comments made by Atlanta Fed President Raphael Bostic, who said that the US central bank should move to taper asset purchases after another strong month or two of employment gains. However, the oil benchmark subsequently recovered to above $69/bbl. Crude prices continue to be driven by moves in the US Treasury market, as many investors, expecting inflation to rise amid continued economic recovery, have been placing bets on a steepening Treasury curve while using crude futures to hedge against inflation (they are one of many instruments being used for this purpose). However, that trade is unraveling now, and sentiment has soured. With vaccination rates in developing countries lagging those in the US and Europe, the perceived threat from the Delta variant is growing as authorities across Asia - and in China in particular - tighten Covid-19 restrictions again. The Covid headlines out of China are likely to get worse before they get better, and the next two weeks will be critical, as we may see whether lockdowns are widened beyond the community level, which could further weigh on demand if traffic slows sharply. A tightening regulatory backdrop in China is not helping matters either, even though authorities have sought to calm nerves. The crackdown on independent refiners has also continued, leading to further delays in the release of crude import quotas and a sharp drawdown in domestic crude stocks. Meanwhile, the latest available data suggests that Chinese air travel is down to the lowest levels since early in the pandemic, as rising cases of the Delta variant have spurred fresh restrictions on movement. Meanwhile, Bloomberg citing other analytical agencies reports that Sinopec, China's biggest refiner, has cut refinery run rates at some plants by 5-10% versus previously planned levels for this month. Furthermore, in the US Covid cases surged to the highest weekly level since early February. It is important to highlight here that despite the significant demand risks stemming from the various coronavirus flare-ups, the global oil market remains fundamentally strong, with demand sufficiently exceeding supply and global inventories continuing to drop. Meanwhile, we expect the outbreak in China to be contained quickly, before the peak autumn travel season commences. If so, this outbreak should have less impact on Chinese oil demand than the Hebei cluster in January-February. And even if the scrutiny on China's smaller private refineries remains, the country's crude import quotas should be released soon, while Chinese oil majors will have to restock their currently low inventories. This will all likely occur just as the market realizes that the return of Iran's supply could be delayed to 2022. Therefore, global oil market fundamentals look set to tighten again during the 4Q21 global oil buying cycle.This morning, Brent continues to hover above $69/bbl as investors look ahead to the EIA monthly oil market report and API's weekly US oil and refined product inventory data. In our view, the EIA may slightly downgrade its global oil demand outlook due to the coronavirus flare-ups; however, we expect demand to remain strong enough to exceed supply for the rest of the year. We think Brent is likely to continue targeting its 100-day moving average, which is near $70/bbl, amid tailwinds from the API report, which is due LD DECLINES, AWAITING ANOTHER TRIGGERDuring yesterday's Asian trading session, gold began pricing in the positive US labor market data from Friday, plunging from $1,765/oz to $1,690/oz. However, it swiftly pared back some of the losses and eventually ended the day near $1,730/oz. EUR/USD retreated from 1.176 to 1.173 and the 10y US Treasury yield rose from 1.30% to 1.32%, creating headwinds for bullion. US JOLTS job openings for June came in at 10.073 mln, above the consensus of 9.27 mln. Markets are very much focused on the US labor market recovery, and yesterday's JOLTS report pushed gold lower as investors now see the increased possibility of the Fed tightening monetary policy earlier. The record job openings augur well for a further increase in nonfarm payrolls in August. Additional federal payments of $400 per week will end on September 6, which will likely push more people into seeking work. Additional headwinds for gold yesterday came from Fed officials, including Raphael Bostic, Thomas Barkin and Eric Rosengren, who noted the progress in the US labor market and suggested that the Fed could begin to taper asset purchases earlier and quicker than currently expected, while expecting a first Fed rate hike next year.Gold is trading near $1,735/oz as we write. Today, markets await the US NFIB small business optimism index for July and the ZEW eurozone survey for August. The consensus for the former stands at 102 points. We expect gold to remain under pressure today ahead of the US CPI reading scheduled for tomorrow. We think bullion is likely to retest support at $1,725/oz today, while a move above $1,755/oz seems unlikely to