Commodities Daily - December 13, 2021

> Oil prices rise ahead of monthly OPEC report as virus fears abate. Today, investors will pore over the monthly oil market report from the OPEC Secretariat. We think Brent could test its 100-day moving average near $77/bbl later in the day if OPEC presents a less pessimistic outlook for the expected oversupply in the global market in 1H22.> Gold closes slightly higher after Friday's inflation data. Gold rose from $1,775/oz to $1,780/oz on Friday, while the US 10y Treasury yield slid from 1.50% to 1.48%. Gold is trading near $1,785/oz as we write. There is little of interest on today's calendar. We expect bullion to trade in a $1,775-1,795/oz corridor.> Most base metals close slightly lower; all eyes on Fed this week. Base metals traded sideways on Friday, most trending slightly downward, waiting for catalysts to determine which direction to head in going forward. Iron ore resumed its uptrend thanks to the announcement that Chinese authorities will aim to support the economy next year. This week, metals markets will be driven by the upcoming Fed meeting and Chinese data releases.OIL PRICES RISE AHEAD OF MONTHLY OPEC REPORT AS VIRUS FEARS ABATEOn Friday, Brent rose $1.9/bbl to reach as high as $75.7/bbl amid signs that fuel consumption is seeing little impact from the Omicron variant. However, there was not much conviction, as recent uptrends have given way to selloffs, such as the one we saw on Thursday after rising infection rates prompted some governments to tighten travel restrictions. The critical factor for the oil market over the rest of the year, in our view, is going to be how many more travel restrictions will be introduced in the next couple of weeks. With commercial flights still below 2019 levels, new curbs on travel have been put in place as the virus spreads in countries including France and China. On Friday, front-month Brent eventually settled at $75.15/bbl, fixing $0.73/bbl above the previous settlement. This morning, Brent ticked higher still, reaching $76.3/bbl on further signs that Omicron won't be as bad as initially feared, as well as growing expectations that China will start employing fiscal stimulus early next year in order to stabilize the economy. At the end of the three-day annual Central Economic Work Conference on Friday, the Communist Party's top decision-makers said that the top priority for next year is "ensuring stability." They also vowed to front-load policy decisions and keep the country's monetary stance flexible and appropriate. The economy has slowed in recent months because of the worsening property market slump, weak consumption growth and repeated outbreaks of Covid-19, which have damaged business and consumer confidence. The meeting's relatively hawkish language with regard to the real estate sector suggests that the drag from the property market will persist. Today, investors will pore over the monthly oil market report from the OPEC Secretariat. We think Brent could test its 100-day moving average near $77/bbl later in the day if OPEC presents a less pessimistic outlook for the expected oversupply in the global market in 1H22. We note that the secretariat has been extremely bullish on 2022 supply, especially with its Russia forecasts, in our view. This week, investors will also take a look through the IEA's monthly oil market report due tomorrow. Both the OPEC and IEA reports will be scrutinized for the latest insight on the Omicron impact. Also in focus this week will be an EU leaders' summit, where representatives will discuss how to tackle the energy crisis as well as the bloc's pandemic response. The main event for global markets this week is of course the Fed meeting on Tuesday and Wednesday. Chairman Jerome Powell has said that the Fed will consider ending its asset purchase program in mid-2022, a few months earlier than initially planned. It will also release a fresh set of rate forecasts (recall that in September the FOMC was evenly split on increasing rates in 2022). The Fed meeting is likely to deliver an overall hawkish message, thus weighing on risk assets, including oil. For this reason, we do not expect Brent to rise beyond its 100-day moving average at $77/ LD CLOSES SLIGHTLY HIGHER AFTER FRIDAY'S INFLATION DATAGold rose from $1,775/oz to $1,780/oz on Friday, while the US 10y Treasury yield slid from 1.50% to 1.48%. Meanwhile, EUR/USD rose from 1.129 to 1.132, creating tailwinds for bullion. US inflation in m-o-m terms moderated from the record high in October. The headline m-o-m CPI gauge came in at 0.8% in November (the consensus was 0.7%), while the y-o-y reading of 6.8% (in line with the consensus) was the highest in almost 40 years. The data offered mixed implications for investors. On the one hand, it suggests that this week's FOMC meeting will signal aggressive monetary policy tightening, since Fed Chairman Jerome Powell has been indicating that he is now open to faster QE tapering. On the other hand, the ease in m-o-m inflation from October's record high could provide some room for the Fed to wait to decide what to do with rates next year. In any case, gold managed to climb a bit higher following the release. Meanwhile, the University of Michigan's US consumer sentiment index unexpectedly rose from 67.4 in November to 70.4 in December, supported by a decline in gasoline prices. This further positive sign for the US economic recovery may have given the Fed further grounds for hawkish decisions and thus limited gold's appeal late on Friday.During this morning's Asian trading session, gold edged up to $1,785/oz. There is little on today's calendar, but tomorrow we get November PPI data from the US. Wednesday will see the long-awaited outcome from the FOMC meeting and a press conference with Jerome Powell, as well as November retail sales data from the US. December Markit PMIs from both the US and the eurozone are due Thursday. Obviously, the focus will be on the Fed's decision and its outlook, including its rate forecasts in the updated dot plot. A hawkish outcome would create headwinds for gold, a non-yielding asset. As for today, we expect bullion to trade in a $1,775-1,795/oz ST BASE METALS CLOSE SLIGHTLY LOWER; ALL EYES ON FED THIS WEEKBase metals mostly closed in the red on Friday, with zinc an exception. Three-month LME contracts on copper edged down 0.29% (-$28/tonne from the previous day's close) to $9,507/tonne, aluminum fell 0.76% (-$20/tonne) to $2,607/tonne and nickel dropped 0.65% (-$129/tonne) to $19,746/tonne, while zinc gained 0.56% (+$19/tonne) to settle at $3,329/tonne.Most base metals continued to trade range-bound on Friday, awaiting new catalysts. Investors were weighing factors including the upcoming Fed meeting, potential Chinese stimulus (which would presumably start in early 2022) and traditionally lower winter demand for metals. While base metals have shown muted dynamics following the Chinese authorities' steps to provide support to the economy (announced at the three-day Central Economic Work Conference last week), there was a more tangible reaction in the iron ore market. Benchmark futures on the Singapore exchange rose to $116/tonne on Friday (the most actively traded contract), boosted by the positive demand outlook given the government's goal to focus on economic stability next year. Although some easing measures may be in the works, the real estate sector will remain under relatively tight regulation, which will affect demand for iron ore. The winter low-demand period is also likely to put a lid on iron ore quotes. Meanwhile, there has not been much news flow on the coal front.This week, the focus will be on Wednesday's pivotal Fed meeting. Chinese economic data may also fuel volatility this week, including the country's latest industrial production