Commodities Daily - August 27, 2020

> Oil holds steady despite upbeat EIA report and Hurricane Laura gathering strength. As we write, Hurricane Laura is racing toward the heart of the US's oil refining industry after being upgraded to a Category 4 hurricane yesterday. There could be catastrophic damage, which would likely boost Brent (especially over WTI) and its calendar spreads. Today, investors will mainly be watching the Jackson Hole symposium, which is occurring virtually this year with Fed Chair Powell expected to deliver dovish comments and possibly unveil a revised approach to inflation. US 2Q20 GDP (second print) and jobless claims are also due. We see a substantial number of bullish developments on the table today for Brent to break above yesterday's high of $46.1/bbl, which we think would take it into the $46.6-47.3/bbl technical range.> Gold prices rebound yesterday despite strong US durable goods orders. As we write, gold is quoted at around $1,950/oz, having added 1.4% in yesterday's session. Fed Chairman Jerome Powell is scheduled to deliver a speech at 16:10 Moscow time today, during which he is expected to outline a change in the Fed's approach to inflation-targeting. Soft rhetoric from Powell could provide support for gold prices late in the day. The next strong resistance level is $1,970/oz.OIL HOLDS STEADY DESPITE UPBEAT EIA REPORT AND HURRICANE LAURA GATHERING STRENGTHAhead of yesterday's EIA report, Brent was trading at $45.8/bbl after earlier testing the $46.1/bbl mark (yesterday's intraday high) amid upbeat US durable goods orders for July. The EIA report showed a fifth consecutive weekly drop in US crude oil stocks of 4.69 mln bbl to 507.7 mln bbl. This came amid a strong 1.2 mln bpd increase in exports to 3.36 mln bpd (traders were aware that the storm is on the way and have sought to get as much crude out of the Gulf Coast as quickly as possible) and a substantial 0.22 mln bpd increase in refinery inputs to 14.71 mln bpd (refineries are at the vanguard of the consumer market, and rising refinery production signals that the recovery in demand for refined products in the world's largest economy is gathering pace). A 0.18 mln bpd increase in imports to 5.9 mln bpd and a 0.1 mln bpd rise in oil production to 10.8 mln bpd were insufficient to offset the overall inventory draw. Inventories at Cushing, the WTI delivery hub, fell by 0.28 mln bbl to 52.4 mln bbl. The refined product data was mostly upbeat as well, showing gasoline stocks falling 4.58 mln bbl to 239.2 mln bbl and distillate stocks rising by 1.39 mln bbl to 179.2 mln bbl. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) fell by a strong 7.77 mln bbl. Total US commercial stockpiles have been consistently sliding this month, suggesting the market is rebalancing following overstocking in 2Q20. The continuation of this key fundamental trend will be the key factor for oil through to the year-end, in our view. Yesterday's report also showed an increase in demand for gasoline, diesel and jet fuel, with the former moving above 9 mln bpd for the first time since March. Hurricane Laura reaching the Gulf Coast is bound to disrupt the demand recovery, however. Despite the upbeat EIA report, oil failed to react accordingly, with front-month Brent eventually settling at $45.64/bbl, down $0.22/bbl on the day. We belive the muted price reaction was due to investors downplaying the importance of this EIA report, knowing that the current trends will be significantly disrupted by Hurricane Laura in the weeks to come. Concerns over the coronavirus and the ongoing demand destruction are also limiting the upside for oil prices. Two European patients have been re-infected with Covid-19, raising concerns about people's immunity to the coronavirus.As we write, Hurricane Laura is racing toward the heart of the US's oil refining industry (with 3.8 mln bpd of refining capacity in its path and facing the risk of being shut; 2.33 mln bpd has already been shut). Yesterday it was upgraded to a Category 4 hurricane and raced through evacuated oil platforms in the US Gulf of Mexico (oil producers had shut 84%, or 1.56 mln bpd, of oil production). Laura could cause catastrophic damage, which would likely boost Brent (especially over WTI) and its calendar spreads. Gasoline and diesel crack spreads are also likely to rise modestly on the back of the storm. Today, investors will mainly be watching the Jackson Hole symposium, which is occurring virtually this year with Fed Chair Powell expected to deliver dovish comments and possibly unveil a revised approach to inflation. US 2Q20 GDP (second print) and jobless claims are also due. We see a substantial number of bullish developments on the table today for Brent to break above yesterday's high of $46.1/bbl, which we think would take it into the $46.6-47.3/bbl technical LD PRICES REBOUND DESPITE STRONG US DURABLE GOODS ORDERSYesterday, the US published some surprisingly strong durable goods orders data. The headline orders figure showed 11.2% m-o-m growth, which easily topped the consensus estimate of 4.8% and the June reading of 7.7%. The strongest growth was seen in the transport and non-defense capital goods categories. The dollar began to strengthen immediately after the data came out, which pressured gold to as low as $1,903/oz. However, prices staged a rapid recovery and gold ended the day nearly 1.4% higher.The volatility was driven first and foremost by the rhetoric of Fed speakers yesterday. For example, Kansas City Fed President Esther George said that it was too early for a change in rate policy given the risks of a double-dip recession. Richmond Fed President Thomas Barkin also expressed caution over the US economy, noting that employment has fallen 5-10% in most sectors of the US economy. Their dovish comments helped set the tone ahead of Jerome Powell's speech today at 16:10 Moscow time, during which the Fed chairman is expected to outline a change in the Fed's approach to inflation-targeting. Soft rhetoric from Powell could provide support for gold prices late in the day. The next strong resistance level is $1,970/