Commodities Daily - December 11, 2019

> Oil trading flat ahead of OPEC report, EIA inventories, US tariff decision. Ahead of today's EIA inventory data (18:30 Moscow time), investors will get a chance to read through the monthly OPEC report, which we expect to be upbeat, lifting Brent to $64.5/bbl. We think OPEC is likely to forecast a balanced market in 1Q20 (as the EIA did yesterday in its report) following Saudi Arabia's recent decision to lower its production in the quarter. We think that a crude draw of 1 mln bbl may be in the cards for today's EIA data, as we anticipate an increase in both exports and refinery runs. We are, however, skeptical that a slight crude oil stock draw will offset the strong negatives in the refined product category and expect Brent to retrace to $63.5/bbl following the release. A break below this level could open the way to $62.3/bbl. We also note that comments on the US-China trade deal could rattle markets at any time given the looming December 15 tariff deadline.> Gold holds stable yesterday and this morning; today's focus on the Fed announcement at 22:00 Moscow time. US President Donald Trump will meet his trade negotiators tomorrow and could make a final decision on the import duties due to come into effect on December 15. We expect substantial market volatility this afternoon and tomorrow amid statements from regulators and politicians.OIL TRADING FLAT AHEAD OF OPEC REPORT, EIA INVENTORIES, US TARIFF DECISIONYesterday, front-month Brent had a choppy session. It fluctuated within a $63.8-64.7/bbl range, eventually settling at $64.34/bbl, fixing $0.09/bbl above the previous settlement. Various reports on the fate of the December 15 US tariff deadline drove the global market dynamics yesterday. Bloomberg reported that Chinese officials expect US President Donald Trump to delay the scheduled tariff increase to provide more time to negotiate a "phase one" deal. The sides are still in almost daily contact and seem to be coming closer to an agreement on scaling back existing tariffs. The Wall Street Journal also reported yesterday that US and Chinese trade negotiators are planning to delay the December tariffs. White House trade advisor Peter Navarro said that the president would make a decision soon on whether to enact or suspend the tariffs. Earlier this week, US Agriculture Secretary Sonny Perdue said, "I don't think the president wants to implement these new tariffs, but there has got to be some movement on their [China's] part to encourage him not to do that." We think that Trump is likely to make the decision at the very last minute in order to keep up the pressure and perhaps get some concessions from China. Later yesterday, the EIA released its monthly oil market report. The main takeaway, in our view, was the balanced market outlook for 1Q20 (previous outlooks had suggested that there would be a 0.1-0.3 mln bpd build in global stockpiles in 1Q20) following Saudi Arabia's promise to make deeper cuts during the quarter. The EIA now sees global stockpiles increasing by 0.1 mln bpd on average next year. Also notable was a 0.07 mln bpd downward revision to the 2020 US oil production growth forecast to 0.93 mln bpd, with average production next year now seen at 13.18 mln bpd. Overnight, the API reported that US crude stocks increased by 1.4 mln bbl to 447 mln bbl last week (the EIA's latest report also estimated them at 447 mln bbl). The buildup came amid a 0.91 mln bpd increase in imports to 6.9 mln bpd and despite a 0.18 mln bpd increase in refinery runs. The refined product data was also bearish, showing a 4.9 mln bbl build in gasoline stocks and a 3.2 mln bbl increase in distillate inventories. The buildup across all categories weighed on Brent, which retreated to $64/bbl this morning.Ahead of today's EIA inventory data (18:30 Moscow time), investors will get a chance to read through the OPEC monthly report, which we expect to be upbeat, lifting Brent to $64.5/bbl. We think OPEC is also likely to forecast a balanced market in 1Q20 following Saudi Arabia's decision. The Bloomberg consensus for the EIA data is for a 3 mln bbl draw in crude inventories, a 2.5 mln bbl increase in gasoline stocks and a 1.95 mln bbl increase in distillate stockpiles. We think that a crude draw of 1 mln bbl may be in the cards, as we anticipate an increase in both exports and refinery runs. We are, however, skeptical that a slight crude oil stock draw would offset strong negatives from the refined product data and expect Brent to retrace to $63.5/bbl following the release. A break below this level could open the way to $62.3/bbl. We also note that comments on the US-China trade deal could rattle markets at any time given the looming December 15 tariff LD HOLDS STABLE YESTERDAY AND THIS MORNING; TODAY'S FOCUS ON THE FED ANNOUNCEMENT AT 22:00 MOSCOW TIMEYesterday saw no notable movements in the gold price, which was stuck around $1,465/oz. The news backdrop was positive. Larry Kudlow, Trump's economic advisor, said no decision had been made to impose duties on steel imports from Brazil and Argentina. Meanwhile, Mexico, Canada and the US signed a protocol amending the USMCA trade agreement. European data was also encouraging. The ZEW economic sentiment index in Germany reached 10.7 in December, its highest level since February 2018 and well above the consensus forecast of 0.3.The main focus today will be on the FOMC's economic forecasts, to be released at 22:00 Moscow time, and Jerome Powell's press conference (22:30). The market almost unanimously expects interest rates to be kept on hold, so most important will be the dot plot reflecting the views of the FOMC members on interest rates in 2020. Should the median forecast provide for at least one rate cut in 2020, gold will receive a boost. If the forecasts remain neutral for 2020, the dollar could strengthen, pressuring gold.We expect substantial market volatility this afternoon and tomorrow amid statements from regulators and politicians. US President Donald Trump will meet his trade negotiators tomorrow and could make a final decision on the import duties due to come into effect on December