Commodities Daily - August 12, 2020

> Oil slides on stock market correction despite upbeat EIA monthly report; OPEC report and EIA inventory data eyed. Ahead of the EIA inventory report today investors will be digesting the monthly OPEC report and US CPI data for July. In our view, OPEC is unlikely to disappoint investors by making downward revisions to its demand estimate for this year. As for the EIA inventory report, we expect to see a minor crude oil stock draw of 1-2 mln bbl amid slightly higher refinery runs and imports, which could be partially offset by lower exports. More important, however, will be the refined product inventory data, which we expect to be upbeat. As we write, Brent is trading near $45/bbl following upbeat API data, positive stock market momentum and a weakening dollar. We think that today Brent is likely to pare back some of yesterday's losses, potentially breaking above technical resistance at $45.2/bbl if the EIA report is upbeat as we expect. Under a very upbeat scenario, Brent will test $46.1/bbl resistance, which we would not rule out.> Gold plummets yesterday amid rise in UST yields, paring losses today. The downtrend has been swiftly reversed, as EUR/USD started rising again. As we write, gold is attempting to consolidate above $1,940/oz. In our view, until the US CPI release at 15:30 Moscow time today, investors are likely to carry on buying gold following yesterday's slump. It has cleared important resistance at $1,919/oz, with the next resistance level strong at $1,978/oz. We doubt it will be reached before the US CPI release, which is likely to be followed by a strong bid for dollars, weighing on gold. Despite yesterday's selloff, we remain constructive on gold's longer-term prospects, given the massive global monetary and fiscal stimulus. We think a sustained uptrend in gold is likely to follow once US Republicans and Democrats reach an agreement for a new fiscal package to support the economy.OIL SLIDES ON STOCK MARKET CORRECTION DESPITE UPBEAT EIA MONTHLY REPORT; OPEC REPORT AND EIA INVENTORY DATA EYEDFront-month Brent started to generate positive momentum early yesterday, gaining around $0.5/bbl to $45.8/bbl. Prices found support from a rally in European stocks, which advanced on solid Chinese automobile sales. However, during the US trading session Brent erased all of the earlier gains, the S&P 500 snapping a seven-day winning streak. This was sparked by a discouraging lack of progress in talks over more aid for the US economy, with no word on when talks might resume. Oil prices continued to slide during the Wall Street session even despite a rather upbeat EIA monthly report. The EIA suggested that US crude production will fall by 0.99 mln bpd this year (last month it forecast a much smaller decrease of 0.60 mln bpd). The EIA also lowered its 2020 non-OPEC supply estimate by 0.13 mln bpd and now expects a decrease of 2.38 mln bpd y-o-y (versus last month's forecast of a 2.24 mln bpd decline). Also on the bullish side, it lifted its 2020 global demand forecast by 0.24 mln bpd and now expects an 8.11 mln bpd y-o-y drop to 93.14 mln bpd. Brent generally tracked the S&P 500 and EUR/USD during the day, eventually settling at $44.5/bbl, fixing $0.49/bbl below the previous settlement. Overnight, the API reported that US crude stocks fell 4 mln bbl to 516 mln bbl last week (versus the EIA's latest figure of 518.6 mln bbl). The draw came amid a 0.06 mln bpd decrease in imports and a 0.07 mln bpd increase in refinery runs. Crude stocks at Cushing were up 1.1 mln bbl. The refined product data was also upbeat, showing a 1.3 mln bbl draw in gasoline stocks and a 2.9 mln bbl drop in distillate inventories. Investors are now positioning for the EIA inventory report today at 17:30 Moscow time. The Bloomberg consensus is calling for a 2.2 mln bbl crude stock draw, a 0.4 mln bbl decrease in gasoline inventories and a 1 mln bbl gain in distillate stocks.Ahead of the EIA inventory report today investors will be digesting the monthly OPEC report and US CPI data for July. In our view, OPEC is unlikely to disappoint investors by making downward revisions to its demand estimate for this year, simply because it already has a more downbeat assessment than both the EIA and IEA. As for the EIA inventory report, we expect to see a minor crude oil stock draw of 1-2 mln bbl amid slightly higher refinery runs and imports, which could be partially offset by lower exports. More important, however, will be the refined product inventory data, which we expect to be upbeat, in line with the API data reported overnight. As we write, Brent is trading near $45/bbl following upbeat API data, positive stock market momentum and a weakening dollar. We think that today Brent is likely to pare back some of yesterday's losses, potentially breaking above technical resistance at $45.2/bbl if the EIA report is upbeat as we expect. Under a very upbeat scenario, Brent will test $46.1/bbl resistance, which we would not rule LD PLUMMETS YESTERDAY AMID RISE IN UST YIELDS, PARING LOSSES TODAYAfter tumbling $45/oz early in the day to $1,985/oz yesterday, gold prices took a breather, supported by a recovery in EUR/USD amid the latest ZEW surveys for Germany and the eurozone. However, the stabilization was short-lived, as the US 10y yield rose to the highest level in a month after the US PPI surprised on the upside, which sent gold plummeting all the way to $1,900/oz. Also pressuring gold was a reported decline in hospitalizations in the US states hardest hit by Covid-19, including New York, California and Texas. Meanwhile, US President Trump said the US government would purchase 100 mln doses of Moderna's experimental coronavirus vaccine, which is currently in late-stage human trials. Upbeat developments on vaccines have usually been negative for gold. This morning, gold continued to sell off and briefly slid below $1,870/oz. However, the downtrend was swiftly reversed around strong technical support at $1,871/oz, as EUR/USD started rising again. As we write, gold is attempting to consolidate above $1,940/oz. In our view, until the US CPI release at 15:30 Moscow time today, investors are likely to carry on buying gold following yesterday's slump. It has cleared important resistance at $1,919/oz, with the next resistance level strong at $1,978/oz. We doubt it will be reached before the US CPI release, which is likely to be followed by a strong bid for dollars, weighing on gold. Despite yesterday's selloff, we remain constructive on gold's longer-term prospects, given the massive global monetary and fiscal stimulus. We think a sustained uptrend in gold is likely to follow once US Republicans and Democrats reach an agreement for a new fiscal package to support the economy.