Commodities Daily - August 19, 2021

> Oil tumbles along with stock markets following Fed minutes and amid mixed EIA inventory report. Yesterday, after rallying $1/bbl to $70/bbl, Brent started to slide toward $67.2/bbl, as although US crude stockpiles fell last week, there was a surprise uptick in gasoline inventories, which highlighted the risks to gasoline demand posed by the Delta variant, which is currently menacing the nation. Later in the day, oil came under further pressure, along with stock markets, after the July FOMC minutes showed that most Fed officials agreed it would probably be appropriate to start slowing the pace of the Fed's bond purchases later this year given the progress made toward its inflation and employment goals. This morning, Brent is trading within a range of $67.0-67.5/bbl as investors look ahead toward US data including the August read of the Philadelphia Fed manufacturing index and weekly jobless claims. In our view, yesterday's selloff is unlikely to continue. We expect Brent to stabilize near $67/bbl today.> Gold trades sideways despite hawkish FOMC minutes. Gold closed virtually flat yesterday at $1,785/oz, while the 10y Treasury yield remained near 1.26%. The FOMC minutes provided hawkish signals, while yesterday's macro data sent mixed signals for bullion. Gold is trading near $1,780/oz as we write. Today, the market awaits US weekly initial jobless claims. We expect bullion to remain range-bound at $1,775-1,790/oz today.OIL TUMBLES ALONG WITH STOCK MARKETS FOLLOWING FED MINUTES AND AMID MIXED EIA INVENTORY REPORTDuring the first half of the day yesterday, Brent was generating positive momentum and rallied $1/bbl to $70/bbl, but it then eased back to $69.3/bbl ahead of the weekly EIA inventory report. Following the release, crude futures initially ticked upward on the reported 3.2 mln bbl draw in US crude stockpiles to 435.5 mln bbl. This came amid a 0.77 mln bpd increase in exports to 3.43 mln bpd and a slight 0.05 mln bpd decrease in imports to 6.35 mln bpd, and despite a 0.19 mln bpd drop in refinery inputs to 16 mln bpd and 0.1 mln bpd rise in US crude oil production to 11.4 mln bpd. East Coast crude imports rose to the highest level since November 2019, suggesting that some US refiners are likely snapping up heavy sour crudes, such as Urals, as Middle East producers, including Saudi Arabia, have raised prices for their crude. Russian grades are also a good substitute for Venezuelan supply. However, traders then began to weigh the risks to gasoline demand reflected in the data, and oil prices started to tumble. Domestic gasoline stockpiles climbed almost 0.7 mln bbl to 228.16 mln bbl (after the API's reported draw on Tuesday), the first increase in more than a month. In addition, gasoline demand fell slightly as the peak summer travel season came toward its end and Covid cases surged. Data from the US Department of Transportation showed that vehicle miles traveled on US interstates declined to 16.6 bln in the week ending August 15, from 16.9 bln the prior week. However, it is important to highlight that the East Coast is running low on gasoline, partly because its imports - mostly from Canada and Europe - have fallen to an eight-year low for this time of the year. This factor should support the gasoline market in the weeks to come amid the overall ease in demand. Meanwhile, the large distillate inventory draw reported yesterday of almost 2.7 mln bpd to 137.8 mln bpd could buoy refiners' margins, with further support ahead likely to come from the crop-harvesting season. Improved jet fuel demand could also contribute to distillate stockpile draws, though the Delta variant clouds the travel outlook for 2H21.Ahead of the release of the July FOMC minutes, Brent was trading near $68.4/bbl. It ultimately settled at $68.23/bbl, $0.8/bbl below the previous settlement. The minutes showed that most Fed officials agreed they could probably start slowing the pace of bond purchases later this year given the progress made toward the regulator's inflation and employment goals. The prospect of reduced stimulus weighed on stock markets and oil prices, causing Brent to begin sliding toward $67/bbl. This morning, Brent is trading within a $67.0-67.5/bbl range as investors look ahead to US data including the August read of the Philadelphia Fed manufacturing index and weekly jobless claims. Investors are also keeping an eye on Tropical Storm Henri, which will likely strengthen into a hurricane later this week and could take a swipe at New England and possibly New York early next week. In our view, yesterday's selloff is unlikely to continue. We expect Brent to start stabilizing near $67/bbl today, as we view the recent downtrend as overdone given the still very constructive market fundamentals. Also worth noting is that support at the 200-day moving average, which is near $63.5/bbl, is within LD TRADES SIDEWAYS DESPITE HAWKISH FOMC MINUTESGold traded in a $1,775-1,795/oz range yesterday but ultimately closed virtually flat at $1,785/oz. The 10y Treasury yield held steady at 1.26%, while EUR/USD stayed near 1.171, limiting gold. The eurozone CPI reading for July was in line with expectations at -0.1% m-o-m and 2% y-o-y. These data points didn't affect gold prices yesterday. US building permits rose 2.6% m-o-m in July, above the consensus forecast of 1% growth. However, housing starts fell 7% m-o-m, below the consensus 2.6% decline. This mixed data failed to provide a clear trend for bullion. The market was also focused on the FOMC minutes, with gold trading below $1,780/oz ahead of the publication. Most committee members expect tapering to start later this year as long as the economy continues to progress in line with expectations. However, the precise timing and pace of the tapering remain in question. The Fed appears unlikely to prioritize tapering mortgage-backed securities QE, with most members seeing the advantages of reducing Treasury bond and MBS purchases at the same pace in order to end QE for both at the same time. Investors found the comments to be less hawkish than expected, which helped to push gold back up to $1,785/oz.Gold is trading near $1,780/oz as we write. Today, the market awaits US weekly jobless claims, with the labor market recovery remaining a key element in the Fed's decisions. The consensus is calling for 364k new claims, versus 375k last week. We expect bullion to remain range-bound at $1,775-1,790/oz