Commodities Daily - August 18, 2021

> Oil prices stabilize ahead of the EIA weekly inventory report. This morning, Brent climbed toward $69.5/bbl following API data overnight showing that US crude and gasoline stockpiles fell last week, with distillate stocks up only slightly. Today, investors will eye July CPI data from the eurozone and July housing starts from the US, but the key releases will be the weekly EIA inventory data and the latest FOMC minutes. We think the EIA data will most likely be upbeat, pushing Brent back toward $70.4/bbl later today.> Gold remains steady ahead of FOMC minutes. Gold closed virtually flat at $1,785/oz yesterday, while the 10y Treasury yield remained at 1.26%. Yesterday's data releases sent mixed signals for bullion. Gold is trading near $1,790/oz as we write. Today, the market will be looking out for the FOMC minutes, US building permits and housing starts for July and the eurozone CPI for July. We see bullion testing support at $1,775/oz today.OIL PRICES STABILIZE AHEAD OF THE EIA WEEKLY INVENTORY REPORTFor most of the day yesterday, Brent hovered above $69/bbl amid headwinds from a stronger dollar and a sharper than expected decline in US retail sales in July. However, later in the day US industrial production in July posted the strongest increase in four months, which briefly pushed Brent to as high as $70/bbl, though it subsequently drifted back to $69/bbl. The front-month Brent contract eventually settled at $69.03/bbl, $0.48/bbl below the previous settlement. The rally in crude prices that kicked off in 1H21 as vaccination programs gained traction and global economic activity picked up has been knocked off course in recent weeks amid the global spread of the more infectious Delta strain, which has posed strong downside risk to the global demand outlook. Meanwhile, OPEC+ remains determined to ease the supply curbs imposed in the early phase of the pandemic, with group output set to rise by 0.4 mln bpd this month. However, the recent softening in prices has had some OPEC+ delegates saying that they do not see a need to accelerate the revival of output, despite US President Joe Biden's call last week for the cartel to restore more production in order to help bring gasoline prices down. The group's next regular meeting is set for September 1. We think Riyadh may now be thinking about pushing for a short pause on the upcoming quota increases in October given the demand concerns related to the Delta variant.This morning, Brent climbed toward $69.5/bbl following API data overnight showing that US crude stockpiles fell by 1.16 mln bbl last week, while gasoline stocks fell by 1.98 mln bbl and distillate stocks increased by only 0.5 mln bbl. Today, investors will eye July CPI data from the eurozone and July housing starts from the US, but the key releases will be the weekly EIA inventory data and the latest FOMC minutes. The consensus for the EIA report envisages a 1.45 mln bbl decline in crude oil inventories, a 2 mln bbl drop in gasoline stocks and a 0.2 mln bbl build in distillate stocks. We think the EIA data will most likely be upbeat, pushing Brent back toward $70.4/bbl later today. We believe a crude oil inventory draw should be in the cards, thanks to strong exports and refinery runs, while gasoline stocks are likely to draw slightly given the recent drop in imports, despite the impact of the Delta strain on demand. The minutes of the July 27-28 FOMC meeting may indicate whether more details on QE tapering can be expected at the August 26-28 Jackson Hole symposium. A chorus of Fed hawks would prefer to lay the groundwork for tapering sooner rather than later, while some of the recent macro data from the US (including the July CPI report) and the risks emanating from the new Covid-19 variants could encourage the Fed to wait until the September meeting to provide clearer signals on the rollback of its asset LD REMAINS STEADY AHEAD OF FOMC MINUTESGold traded sideways in a $1,780-1,795/oz range yesterday and closed virtually flat at $1,785/oz. Meanwhile, the 10y US Treasury yield stayed at 1.26%. EUR/USD eased from 1.178 to 1.171, creating a headwind for bullion. Eurozone GDP expanded 2% Q-o-Q in 2Q21, in line with expectations, and this failed to move gold. US economic macro data provided mixed signals. US retail sales dropped 1.1% m-o-m in July, below the consensus of a 0.3% decline. This indicates that consumption is being dented by elevated inflation and spending is seeing a shift toward services. US industrial production rose 0.9% m-o-m in July, above the consensus forecast of 0.5% growth. The rising industrial production and dollar strength put bullion under pressure. A speech by Fed Chair Jerome Powell failed to provide fresh comments on future monetary policy, though Powell mentioned that the coronavirus is casting a shadow over economic activity. Meanwhile, Minneapolis Fed President Neel Kashkari said it would be reasonable to start tapering QE at the end of this year or at the beginning of next year.Gold is trading near $1,790/oz as we write. Today, the market awaits FOMC minutes, building permits and housing starts for July and eurozone CPI for July. Investors will today be focused on the minutes from the last Fed meeting, which could contain pointers about QE tapering. Should this prove to be the case, gold will likely come under pressure. The consensus for the eurozone CPI for July stands at -0.1% m-o-m and 2.2% y-o-y. We expect gold to retest support at $1,775/oz today, which could pave the way to $1,755/