Commodities Daily - August 17, 2020

> Oil recovers after Friday's slide; EIA drilling productivity report on the horizon. Brent is paring back Friday's losses as we write after the US and China delayed a review of their phase one trade deal initially slated for Saturday. Today, investors await the EIA drilling productivity report, which will contain the agency's US shale output estimates for September. Amid a further fall in rig counts and the EIA's recent punchy downgrade to its US oil production estimate for this year, today's report could indicate that the slowdown in shale oil production will gather pace in September, which is likely to boost prices and push Brent into testing technical resistance at $45.6/bbl, and possibly even extend the uptrend into the $46.3-47.5/bbl range.> Gold declines but still faces risk of further correction. Gold failed to break resistance at $1,968/oz last week and became more skewed toward the downside. Although it climbed back toward $1,955/oz this morning, we still expect it to correct this week and test key support at $1,913/oz. Saturday's US-Chinese trade talks have been delayed indefinitely, and the US president has ordered ByteDance to divest its US TikTok operations, which could prove dollar supportive and thus gold price negative.OIL RECOVERS AFTER FRIDAY'S SLIDE; EIA DRILLING PRODUCTIVITY REPORT ON THE HORIZONFront-month Brent fell almost $0.7/bbl to $44.5/bbl straight after the European open on Friday amid a strong correction in major stock market indexes, including the S&P 500 futures and the FTSE 100. This came on the back of fresh quarantine rules in the UK. It has placed new restrictions on arrivals from certain countries, which has compounded fears of a patchy recovery in oil products consumption. Last week both the OPEC secretariat and the IEA cut their global demand estimates for 2020, although both still see demand prevailing over supply for the rest of the year. Later on Friday, investors were digesting US retail sales (up 1.2 % m-o-m in July, below the consensus forecast due to a decline in auto sales), industrial output (up 3.0% in July for a third monthly increase, but still 8.4% below the pre-pandemic February level) and the University of Michigan consumer confidence index (up slightly in early August thanks to the positive impact from the downward trend in new infections). Overall, the figures underscored stuttering gains: retail sales and factory activity aren't declining, but they're also not increasing at a pace to bolster growth. This underscores the need for continued robust fiscal support, something that policy makers in Washington are still debating. Midway into the US trading session, Brent tested the $44.5/bbl mark for a second time and once again failed to break below, with support coming from Baker Hughes reporting the US active oil rig count falling by four units to 172. Brent eventually settled at $44.8/bbl, down $0.16/bbl on the day.Brent is paring back Friday's losses as we write after the US and China delayed a review of their phase one trade deal initially slated for Saturday due, according to Reuters, to scheduling conflicts and the need to allow time for more Chinese purchases of US exports. No new date has been agreed, but Reuters (citing US oil traders, shipbrokers and Chinese importers) reported that Chinese state-owned oil firms have tentatively booked tankers to carry at least 20 mln bbl of US crude in August and September, indicating a ramp-up in energy purchases, as stipulated in the trade deal. This is positive for oil as is likely to accelerate the rebalancing of the US oil market. Today, investors await the EIA drilling productivity report, which will contain the agency's US shale output estimates for September. Amid a further fall in rig counts and the EIA's recent punchy downgrade to its US oil production estimate for this year, today's report could indicate that the slowdown in shale oil production will gather pace in September, which is likely to boost prices and push Brent into testing technical resistance at $45.6/bbl, and possibly even extend the uptrend into the $46.3-47.5/bbl range. Later this week, investors will be keeping an eye on the OPEC+ ministerial monitoring committee meeting, which is now scheduled to take place on Wednesday. The market will be particularly interested to see how OPEC+ will tackle persistent overproduction by Nigeria and Iraq, while no strong market-moving decisions are expected. Also this week, there is a strong risk that US-Iran tensions could escalate and push oil prices higher following the US seizure of four Iranian fuel shipments (transporting about 1.12 mln bbl of gasoline) en route to LD DECLINES BUT STILL FACES RISK OF FURTHER CORRECTIONGold was trading near $1,960/oz on Friday morning but slid to as low as $1,934/oz midway into the US session. The main focus on Friday was on US data, including US July retail sales and industrial output, as well as the August University of Michigan consumer confidence index. Overall, the figures underscored stuttering economic gains, but they were not sufficiently downbeat to provide strong support for safe-haven gold. Many had thought that the University of Michigan consumer confidence index would surprise to the downside amid the expiry of $600 bln of additional federal unemployment benefits at the end of July, but in fact it unexpectedly beat the consensus thanks to positive virus news (the number of new cases is now falling nationwide) and stock market gains (with the S&P 500 closing in on a record high). This was essentially the release that pressured gold to its intraday lows on Friday, with hedge funds so far unwilling to start rebuilding long positions following the slump in gold at the start of last week. The latest CFTC data on futures and options shows that hedge fund managers have cut their net bullish gold bets to an eight-week low, with the long-only total now at its lowest in eight weeks and the short-only total at its highest in 14 months.Gold failed to break resistance at $1,968/oz on Friday and became more skewed toward the downside. Although it climbed back toward $1,955/oz this morning, we still expect it to correct this week and test key support at $1,913/oz. Saturday's US-Chinese trade talks have been delayed indefinitely, and the US president has ordered ByteDance to divest its US TikTok operations, which could prove dollar supportive and thus gold price negative. Later this week, investors will await the FOMC and ECB minutes, while preliminary August EM PMIs will start coming in on Friday. The only factor that could overturn the high risk of a correction and even generate very strong flows into long positions this week would be progress on the new coronavirus fiscal support package in the US, though no breakthrough appears to be in sight right