Commodities Daily - August 31, 2021

> Oil prices stabilize amid Hurricane Ida aftermath. Yesterday, Brent traded sideways within the $72.0-73.7/bbl range. Producers in the Gulf of Mexico region shut down about 1.7 mln bpd of crude oil production capacity ahead of the storm. Most of this capacity should soon begin to gradually come back online, while refineries in Louisiana may be somewhat slower to restore throughput. This morning, Brent is hovering above $73/bbl as investors look ahead to August CPI from the eurozone, US consumer confidence for the same month and the weekly API crude oil and refined product inventory update, which is due overnight. In our view, the Brent October contract is likely to expire today within the $72-73.7/bbl range it traded in yesterday. We do not see any catalysts that could take it toward resistance at $74.8/bbl, while the next strong support level is $71.7/bbl. > Gold edges lower ahead of US labor market data for August. Gold slid from $1,820/oz to $1,810/oz yesterday, while the 10y Treasury yield declined from 1.30% to 1.28%. During the Asian session today, gold pared some of yesterday's losses and is trading near $1,815/oz. Today, the market awaits eurozone CPI data for August. Meanwhile, US data will include Conference Board consumer confidence for August, the S&P Case-Shiller home price index for June and the Chicago PMI for August. We expect bullion to remain range-bound at $1,800-1,830/oz today.OIL PRICES STABILIZE AMID HURRICANE IDA AFTERMATHYesterday, Brent traded sideways in the $72-73.7/bbl range and eventually settled at $73.41/bbl, $0.71/bbl above the previous settlement. Tropical Storm Ida (downgraded from a hurricane) remained the main focus in the oil market. It shut down 1.7 mln bpd of crude oil production along the Gulf of Mexico and knocked out over 2.5 mln bpd of refining capacity (the total outage, including precautionary refinery run cuts, may have been closer to 3 mln bpd) amid widespread damage to electricity infrastructure. The lost crude production could be close to 12 mln bbl without accounting for potential damage to platforms (which, however, we would not expect to be substantial). The amount of lost refining capacity has so far exceeded the upstream outages (for August, we see 5.2 mln bbl of lost crude production versus 6.5 mln bbl of lost crude oil demand), which is bullish for refinery margins. We think the net impact of the hurricane will lead to weaker crude draws in the US in both August and September. Inventory draws in the Gulf of Mexico area are now projected at 6 mln bbl and 0.5 mln bbl in the respective months, down from 7 mln bbl and 2 mln bbl on Friday, when the hurricane was about to strike.Assuming the Colonial Pipeline (the largest pipeline system for refined oil products in the US) restarts quickly (it shut down its two main lines before the storm made landfall), the refinery outages will cause a sharp drop in US oil product exports as the pipeline starts to increasingly supply the domestic market. Any loss in US diesel exports, meanwhile, will lift European margins, as ARA region diesel inventories have started to tighten, and as product imports to Europe from Asia and the Middle East are still low. Stronger European margins should boost Brent, while the lost US refining capacity will weigh on WTI, widening the WTI-Brent spread. The widespread US refinery outages may also lead the IEA to authorize the release of European strategic oil inventories (most of which are held in the form of refined products) to ease pressure on the refined products market, as occurred after Hurricane Katrina.This morning, Brent is hovering above $73/bbl, with early data showing that the coronavirus curbs imposed by Beijing in August to check the spread of the Delta variant have impacted the economy. China's official manufacturing PMI fell from 50.4 in July to 50.1 in August, slightly lower than the median estimate in a Bloomberg survey of economists. Investors today are waiting on August CPI from the eurozone, US consumer confidence for the same month and API's weekly crude oil and refined product inventory update due overnight. In our view, the Brent October contract is likely to expire today within the $72.0-73.7/bbl range it traded in yesterday. We do not see any catalysts that could take it toward resistance at $74.8/bbl, while the next strong support level is $71.7/bbl. Price volatility is likely to be elevated tomorrow, as investors will be closely following the virtual OPEC+ meeting (the ministers now gather frequently to assess whether their supply strategy fits the current market conditions), the weekly EIA crude oil and refined product inventory data and August manufacturing PMIs from around the LD EDGES LOWER AHEAD OF US LABOR MARKET DATA FOR AUGUSTGold slid from $1,820/oz to $1,810/oz yesterday, while the 10y Treasury yield declined from 1.30% to 1.28%. EUR/USD was steady near 1.180. The macro data looked favorable for bullion. US pending home sales for July fell 1.8% m-o-m, versus the consensus for a 0.3% rise. The Dallas Fed manufacturing index for August tumbled from 27.3 to 9.0 points, way off the expected 23.0. This suggests some slowdown in the US economic recovery, which means less risk of Fed policy tightening. However, yesterday gold was pressured by a global risk-on move. In particular, the S&P 500 hit a new high at 4,500 points and most markets saw gains. In addition, the looming August US jobs report on Friday was creating headwinds for gold yesterday, with 750k nonfarm payroll additions expected and 625k private payroll additions expected to be reported by the ADP tomorrow.During the Asian session today, gold pared some of yesterday's losses and is trading near $1,815/oz. Today, the market awaits eurozone CPI data for August. Meanwhile, US data will include Conference Board consumer confidence for August, the S&P Case-Shiller home price index for June and the Chicago PMI for August. The US consumer confidence index is expected to fall to 123.0 points from 129.1 in July. If the data shows more signs of a slowdown in the US recovery, this could create tailwinds for gold today, though the prevailing expectations about the labor market data for August is likely to continue to pressure prices. We expect bullion to remain range-bound at $1,800-1,830/oz