Commodities Daily - August 13, 2021

> Oil slides on downbeat IEA and OPEC monthly reports. Brent is hovering below $71/bbl as we write as the latest Covid-19 wave is leading to tighter curbs on movement across the globe. Today, investors are primarily eying the preliminary University of Michigan consumer sentiment index for August, which will provide an indication of whether consumers are willing to spend money. We think Brent is likely to end the week near technical support at $70.2/bbl, which is also its 100d MA, as we expect US consumer sentiment to deteriorate in August amid fears of the fast-spreading Delta variant, which is now also clouding the oil demand outlook.> Gold prices held steady yesterday, shrugging off gold-negative macro data. Gold traded sideways near $1,750/oz yesterday, while the 10y US Treasury yield traded in a 1.33-1.37% range. The US PPI statistics yesterday were slightly negative for gold prices. Bullion is trading near $1,755/oz as we write. Today, markets await the August reading of the US consumer sentiment index. We expect gold to be range-bound at $1,735-1,755/oz.OIL SLIDES ON DOWNBEAT IEA AND OPEC MONTHLY REPORTS Brent reached $71.9/bbl yesterday before dipping below $71/bbl following the release of the monthly IEA and OPEC oil market reports. The IEA lowered its global demand estimate for 2021 by 0.29 mln bpd, mainly due to China and Europe. The agency also cut its 2022 demand forecast again, mainly due to China, where it clearly does not expect a bounce back, and the US. It slightly cut its 2021 non-OPEC supply estimate, as lower North Sea and Asian projections helped to offset an upward revision to Russian output. The IEA massively raised its Russian production forecast for 2022, which confounds us, as we understand that Russia does not have this kind of production capacity, and to achieve this would require drilling significantly above current levels. The IEA noted that the immediate boost from OPEC+ is colliding with slower demand growth and higher output from outside the alliance, which is stamping out lingering suggestions of a near-term supply crunch or super cycle and highlighting that the balance could tilt back to a surplus in 2022. The report also indicated that OPEC is already producing the volume of crude needed in 2022, so plans to restore more production will likely tip the market back into oversupply next year as non-OPEC countries ramp up production. Meanwhile, the preliminary IEA data for July shows that OECD oil inventories rose by 4.0 mln bbl, led by refined products (+9.5 mln bbl), with total inventories remaining below the five-year averages in both 2015-19 and 2016-20.The OPEC Secretariat's monthly report was less downbeat, with very few changes made to last month's global oil demand estimates for 2021 and 2022. However, the Secretariat markedly raised its non-OPEC supply estimate for 2021, mainly due to Russia, the US and China. It also raised next year's supply projection by more than 1 mln bpd, again with the assumption that Russia can sharply raise output. We emphasize our skepticism that Russia has sufficient spare capacity, while it also has an unconducive tax regime and not enough drilling going on to achieve this sort of growth. The Secretariat sharply lowered its demand estimate for OPEC crude in 2021 and 2022 due to the large upward revisions to non-OPEC supply in both years, which we see as overly optimistic. Following these releases, Brent went on to settle at $71.31/bbl, down $0.13/bbl on the day.Brent is hovering below $71/bbl as we write as the latest Covid-19 wave is leading to tighter curbs on movement across the globe. The South Korean prime minister asked citizens to refrain from traveling this weekend, and Australia is facing its worst Covid situation yet, with experts saying a lockdown of its biggest city Sydney needs to be ramped up to prevent further spread. Today, investors are primarily eying the preliminary University of Michigan consumer sentiment index for August, which will provide an indication of whether consumers are willing to spend money. We think Brent is likely to end the week near technical support at $70.2/bbl, which is also its 100d MA, as we expect US consumer sentiment to deteriorate in August amid fears of the fast-spreading Delta variant, which is now also clouding the oil demand outlook. Consumer sentiment has proved sensitive to the course of the virus, even as each wave has had a smaller detrimental impact on the economy, as pandemic-induced price pressures have dented consumer purchasing power. Buying conditions for homes, vehicles, and household durables have deteriorated despite rising LD PRICES HELD STEADY YESTERDAY, SHRUGGING OFF GOLD-NEGATIVE MACRO DATAGold traded sideways near $1,750/oz yesterday, while the 10y US Treasury yield was quoted in a range of 1.33-1.37%. EUR/USD was also steady, hovering near 1.173, which limited gold's movement. Eurozone industrial production fell 0.3% m-o-m in June, while only a 0.2% decline had been expected. This created headwinds for bullion. Meanwhile, the US producer price index for July delivered a surprise. Unlike the CPI, the PPI did not show signs of a slowdown in price growth. The headline m-o-m reading came in at 1.0%, well above the consensus of 0.6% but in line with June. The y-o-y reading of 7.8% was the highest since 2010 and far above the expected 7.3%. The core PPI, which excludes energy and food prices, also printed at 1.0% in m-o-m terms, topping the consensus of 0.5% but matching the June level. In y-o-y terms, the core PPI gauge ticked up from 5.6% in June to 6.2%, above the consensus of 5.6%. All in all, the PPI data showed that inflationary pressure increased at the wholesale level in July, which fueled concerns about Fed policy tightening and thus created headwinds for gold. Further headwinds came from a reported decline in US initial jobless claims last week to 375k, in line with the consensus. Another source of pressure was commentary from San Francisco Fed President Mary Daly, who indicated that it could be appropriate for the Fed to start dialing back its extraordinary economic support measures late this year or early next year given the strength of the economic recovery. Despite all these negative developments, gold managed to consolidate near $1,750/oz yesterday. Gold is wrestling with resistance at $1,755/oz as we write. Today, the market awaits the August reading of the US consumer sentiment index. The consensus estimate is 81.2, which happens to be the July reading. We expect gold to be range-bound at $1,735-1,755/oz