Commodities Daily - December 1, 2020

> Oil under pressure as OPEC+ meeting moved to Thursday amid disagreements. Today, investors will be tuned in for news about OPEC/OPEC+, in particular looking for signs of disagreement among the key countries. In our view, the ongoing OPEC+ friction could unnerve the market, pressuring Brent below the $47.5/bbl support level and into a range of $46.9-47.2/bbl, with any correction likely limited to $46.5/bbl.> Gold begins to pare back losses and is heading back toward $1,800/oz. Today, the focus will be on manufacturing PMIs from a number of DM economies. Also, Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin will speak in the US Senate today. Their speeches could include calls to pass more stimulus measures for the US economy. We expect these factors to support risk appetite today and push the dollar lower (EUR/USD could retest 1.20 after sliding to 1.1925 overnight) and gold higher. We think bullion is likely to climb to the $1,791-1,799/oz range today after twice failing to break and consolidate below the $1,767/oz support level yesterday.OIL UNDER PRESSURE AS OPEC+ MEETING MOVED TO THURSDAY AMID DISAGREEMENTSThe new front-month Brent contract, for February delivery, traded in a $47.1-48.3/bbl range yesterday and eventually settled at $47.88/bbl, fixing $0.37/bbl below the previous settlement. The outgoing January contract settled at $47.59/bbl, fixing $0.59/bbl below the previous settlement. The main focus was the online OPEC talks, where a three-month extension of current supply targets was proposed by Algeria's energy minister (the current OPEC president) in an opening statement, warning participants that oil market conditions are likely to continue through 1Q21. As had been largely expected, the OPEC countries failed to come to a final decision before the OPEC+ talks, which had been initially scheduled for today but have now been pushed back to Thursday. There had seemed to be a consensus for rolling over the current cuts, but some countries (the UAE in particular, according to Reuters) sought to make an extension contingent on everyone meeting their targets. According to Bloomberg live reporting, Russia, the second highest "over-producer" in OPEC+ in volume terms, has not been asked to compensate for this, which represents an issue for the UAE. Further complicating things is that Russia has reportedly suggested that OPEC+ start increasing output by 0.5 mln bpd each month starting in January. However, Kremlin spokesman Dmitri Peskov calmed the market somewhat by highlighting that the differences between Russia and OPEC were not as significant as earlier this year, when disagreements led to a collapse in talks and a surge in output. Meanwhile, Reuters has reported, citing three OPEC sources, that the Saudi energy minister, without providing a clear reason, threatened to resign yesterday as co-chair of the committee that oversees the output deal.In our view, it seems Saudi Arabia considers the UAE's proposal unreasonable, especially as overall group compliance remains very strong. In addition, it remains unclear whether Russia would be willing to make up for its "under-compliance," which has averaged just 0.08 mln bpd since the start of the deal in May (a tiny share of its total 9.90 mln bpd production in October). Because the debate remains over relatively small numbers, we still believe OPEC+ is more likely than not to agree on a three-month extension of the current 7.7 mln bpd production cuts. Nevertheless, the breakdown in talks yesterday, together with the exasperation expressed by Saudi Arabia, means that another failure at today's OPEC meeting should not be dismissed - there remains a chance that the OPEC/OPEC+ meeting, having been pushed back to Thursday, could also end without a consensus decision, in which case phase three of the deal would begin on January 1 and up to 1.9 mln bpd more crude would enter the market. That would translate into a build in stocks at a pace of around 0.5 mln bpd in 1Q21, we estimate.Today, investors will be tuned in for news about OPEC/OPEC+, in particular looking for signs of disagreement among the key countries. In our view, the ongoing OPEC+ friction could unnerve the market, pressuring Brent below the $47.5/bbl support level and into a range of $46.9-47.2/bbl, with any correction likely limited to $46.5/bbl.GOLD BEGINS TO PARE BACK LOSSES AND IS HEADING BACK TOWARD $1,800/OZGold slid $20/oz to $1,770/oz early yesterday before consolidating within a $1,767-1,780/oz range. It is closing on the $1,790/oz mark as we write. Global dollar weakness (EUR/USD reached 1.20 yesterday) is providing support, as is dip-buying activity, after gold slid below its key 200d MA support level on Friday. The dollar began to strengthen sharply against most currencies after the US markets opened, limiting the upside for gold. This was due to profit taking on short dollar positions. News that major pharma firms are moving ahead with applications to launch their Covid-19 vaccines failed to pressure gold, which is likely an indication that the vaccine developments that diminished gold's safe-haven premium in November are almost fully priced in and that investors are more focused on profit taking and covering short positions, which are price supportive.Today, the focus will be on manufacturing PMIs from a number of DM economies. These numbers should be decent and point to a further rapid recovery in the global economy. Also, Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin will speak in the US Senate today. Their speeches could include calls to pass more stimulus measures for the US economy. We expect these factors to support risk appetite today and push the dollar lower (EUR/USD could retest 1.20 after sliding to 1.1925 overnight) and gold higher. We think bullion is likely to climb to the $1,791-1,799/oz range today after twice failing to break and consolidate below the $1,767/oz support level yesterday.