Commodities Daily - August 18, 2020

> Oil trading sideways as investors prepare for first batch of US inventory data. Today is a quiet day for economic data, with only US building permits and housing data on the radar. Much more important will be the API data on US oil and refined product inventories overnight. After stabilizing in July, total US commercial stockpiles are now finally beginning to slide, as total demand for all products is slowly creeping higher (although still down 12% from the five-year average) amid fairly restrained oil and refined product supplies. If the API report is able to provide fresh confirmation of a further recovery in demand and another decrease in oil and refined product stockpiles, it would boost optimism. We expect Brent to break above $45.6/bbl technical resistance today, and, if the API data is upbeat (as we expect it to be), to rise toward the next resistance point at $46.3/bbl.> Gold prices surge as US Treasury yields fall and dollar weakens. In our view, having broken resistance at $1,993/oz, gold is very likely to surge toward the next technical resistance of $2,023/oz today. With no key data releases today, prices will be largely driven by technical factors, which now favor the bulls. A break above the $2,023/oz mark could open a path to $2,044/oz.OIL TRADING SIDEWAYS AS INVESTORS PREPARE FOR FIRST BATCH OF US INVENTORY DATAAfter trading sideways within the $45.0-45.2/bbl range at the start of the day yesterday, front-month Brent slid toward $44.5/bbl after the European open. This move lower was partially attributable to Japan, the world's third-largest economy and fourth-largest oil consumer, reporting its worst GDP drop on record. Another negative factor was the doubling of coronavirus cases in Italy over the past two weeks amid what seems to be the beginning of a second wave. This has prompted restrictions on bars and nightclubs to be reimposed. However, as was the case on two occasions on Friday, Brent resisted breaking below $44.5/bbl and during US trading posted a solid rebound toward $45.4/bbl. Helping buoy sentiment are signs that some parts of the US hardest hit by the Covid-19 outbreak may be improving. Florida announced the fewest new cases since June and Arizona reported the smallest increase in new infections in two months.A mixed factor for oil during the Wall Street session yesterday was the EIA's drilling productivity report. The agency still forecasts US tight oil output continuing to drop, although at a slower pace: it sees a 0.02 mln bpd decrease m-o-m in September to 7.56 mln bpd. Most importantly in our view, however, was that the EIA revised its August shale oil output forecast to 7.58 mln bpd from last month's 7.49 mln bpd. Furthermore, oil output is expected to rise at the two largest tight oil plays, the Permian Basin and Bakken shale formation. This is much less bullish than last week's EIA monthly oil market report suggested (it saw US crude output falling by 0.99 mln bpd this year, an estimate revised lower from a much smaller decrease of 0.60 mln bpd forecasted in July). Brent eventually settled at $45.37/bbl yesterday, fixing $0.57/bbl above the previous settlement. Today is a quiet day for economic data, with only US building permits and housing data on the radar. Much more important will be the API data on US oil and refined product inventories overnight. After stabilizing in July, total US commercial stockpiles are now finally beginning to slide, as total demand for all products is slowly creeping higher (although still down 12% from the five-year average for this time of year) amid fairly restrained oil and refined product supplies. If the API report is able to provide fresh confirmation of a further recovery in demand and another decrease in oil and refined product stockpiles, it would boost optimism. We expect Brent to break above $45.6/bbl technical resistance today, and, if the API data is upbeat (as we expect it to be), to rise toward the next resistance point at $46.3/ LD PRICES SURGE AS US TREASURY YIELDS FALL AND DOLLAR WEAKENSAfter sliding toward $1,930/oz early yesterday, gold prices began to surge and by the start of US trading broke above the key $1,968/oz technical resistance level. Both the decrease in US Treasury yields (after last week's rally) and weaker dollar provided strong tailwinds. A negative factor for the dollar yesterday was the 13.5 point m-o-m decrease in the New York Fed's Empire State business conditions index to 3.7 in August, a lower reading than had been expected, which signals a slower pace of recovery. The index had surged in July after being in negative territory since the pandemic began. Gold's break above key technical resistance of $1,968/oz put it technically in bullish territory and meant a big defeat for bears who had been expecting a longer correction following recent highs. This morning, gold is pushing toward $2,010/oz amid mixed US/China trade war headlines. On the more negative side, the US government placed further restrictions on Chinese company Huawei, now limiting exports of commercially available computer chips. On the positive side, US President Donald Trump remarked yesterday that China has been more than fulfilling its end of the phase one trade deal. Also important to highlight is that the next US fiscal stimulus bill remained in the headlines. We recall that after lawmakers failed to reach a compromise before leaving on recess, Trump signed an order to provide temporary measures, such as continuing expanded unemployment benefits. The latest reports indicate that Senate Republicans are planning to introduce a more modest bill, which is likely to be supportive for gold.In our view, having broken resistance at $1,993/oz, gold is very likely to surge toward the next technical resistance of $2,023/oz today. With no key data releases today, prices will be largely driven by technical factors, which now favor the bulls. A break above the $2,023/oz mark could open a path to $2,044/oz. Investors are looking ahead to tomorrow, when the Fed will release the minutes from its latest policy meeting. This could provide more clarity about the potential timing and nature of any changes to forward