Commodities Daily - August 20, 2020

> Oil remains under pressure due to demand concerns despite US stock draws. Markets retreated late on in the US session after the FOMC minutes gave a mixed impression of the US economy, indicating that growth is present but sluggish, and that the committee could act less aggressively to stave off an economic decline in the near term. This news has pressured Brent down to the $45/bbl mark as we write. Today will see the release of the Philadelphia Fed business outlook survey and US initial jobless claims, which we think are both likely to surprise to the upside. We therefore expect Brent to take a run at $45.6/bbl technical resistance, with a break above paving the way to $46.3/bbl.> Gold prices slide after FOMC minutes and face risk of deeper correction. Bloomberg is reporting that the US and China are planning to resume their delayed trade talks. Any newfound trade optimism would likely limit moves higher in gold. Bullion, meanwhile, remains very sensitive to movements in the dollar and could come under pressure if today's US initial jobless claims are upbeat. From the technical perspective, the upside for gold today is limited to the $1,958/oz resistance level. It failed to break above this level this morning and now could be facing a correction all the way to $1,863/oz, which is where last week's strong correction stopped.OIL REMAINS UNDER PRESSURE DUE TO DEMAND CONCERNS DESPITE US STOCK DRAWSAhead of yesterday's EIA report, Brent slipped $0.4/bbl to an intraday low of $44.8/bbl, which we had identified as a technical support level. The EIA report showed a fourth consecutive weekly drop in US crude oil stocks (the first instance of four consecutive weekly declines this year) of 1.63 mln bbl to 512.4 mln bbl (the lowest level since early April). Surprisingly, this came despite a strong 1 mln bpd fall in exports to 2.13 mln bpd, a 0.17 mln bpd decrease in refinery inputs to 14.48 mln bpd and a 0.1 mln bpd increase in imports to 5.73 mln bpd. Inventories at Cushing, the WTI delivery hub, fell by 0.6 mln bbl to 52.6 mln bbl. The refined product data was also upbeat, showing gasoline stocks falling 3.32 mln bbl to 243.76 mln bbl (taking the edge off a very strong 5 mln bbl build reported by the API) with distillate stocks rising by 0.15 mln bbl to 177.8 mln bbl. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) fell by 2.61 mln bbl. After stabilizing in July, total US commercial stockpiles have been sliding this month; however, last week this was due to lower refining activity, which overshadowed a weekly decrease in demand, which was a strong downbeat development. Yesterday's report showed that gasoline demand fell w-o-w after gradually increasing from July to early August, and it is still well below last year's number. The summer driving season is coming to a close, meaning that overall fuel demand is set to decline and that refinery runs will need to drop further for refined product inventories to continue to decline. In our view, refining will likely continue to underwhelm heading into maintenance season amid lower end-user demand and low refining margins, leading to a further decrease in motor fuel stockpiles.Following the EIA report, Brent rebounded to $45.5/bbl, with investors simultaneously eyeing commentary from the OPEC+ joint ministerial monitoring committee (which oversees the OPEC+ deal). We think the key highlight was mixed messages over demand, which have likely spooked investors. At the start of the talks, Saudi Prince Abdulaziz said the signs were encouraging and oil demand could return to 97% of pre-pandemic levels by 4Q20. However, the meeting's final communique warned that the pace of the demand recovery was slower than expected with "growing risks of a prolonged wave of Covid-19." Meanwhile, OPEC+ is keeping up the pressure on Nigeria and Iraq to abide by their crude-production targets, as the market recovery remains fragile. Brent eventually settled at $45.37/bbl, down $0.09/bbl on the day.Markets retreated late in the US session after the FOMC minutes gave a mixed impression of the US economy, indicating that growth is present but sluggish, and that the committee could act less aggressively to stave off an economic decline in the near term. This news has pressured Brent down to the $45/bbl mark as we write. Today will see the release of the Philadelphia Fed business outlook survey and US initial jobless claims, which we think are both likely to surprise to the upside. We therefore expect Brent to take a run at $45.6/bbl technical resistance, with a break above paving the way to $46.3/ LD PRICES SLIDE AFTER FOMC MINUTES AND FACE RISK OF DEEPER CORRECTIONAfter hovering slightly above the $2,000/oz mark early yesterday, gold prices began to slide as the dollar firmed. Following the US open, amid a sharp correction in EUR/USD, gold plummeted $35/oz to $1,960/oz, where it was trading ahead of the Fed minutes. Markets had been looking ahead to the minutes in search of more insight into how the committee was thinking, given that at the last meeting there were no major changes in either policy or rhetoric. The minutes showed that yield-curve control is not considered justified in the current environment but that it remains an option for the Fed if things were to significantly change. Thus, markets seem to believe that it is unlikely to come anytime soon, which has led to an advance in US 10y yields (which are inversely correlated with gold). Bullion plummeted to as low as $1,926/oz as a result. Also supportive of the dollar were upbeat comments by St Louis Fed President James Bullard, who said that he sees GDP contracting 4% this year, which is better than the average forecast given by FOMC members in June (a 6.5% contraction).This morning, gold prices have rebounded to $1,955/oz after the US announced it would suspend or revoke three bilateral agreements with Hong Kong, including ones pertaining to extradition and tax exemptions. However, Bloomberg is reporting that the US and China are planning to resume their delayed trade talks. Any newfound trade optimism would likely limit moves higher in gold. Bullion, meanwhile, remains very sensitive to movements in the dollar and could come under pressure if today's US initial jobless claims are upbeat. From the technical perspective, the upside for gold today is limited to the $1,958/oz resistance level. It failed to break above this level this morning and now could be facing a correction all the way to $1,863/oz, which is where last week's strong correction