Commodities Daily - December 14, 2021

> Oil prices slide ahead of IEA monthly oil market report. This morning, Brent has dipped to $73.7/bbl, with investors today eyeing the monthly IEA oil market report and US November PPI data. In our view, the renewed concerns over the Omicron variant, together with the corresponding market risks that the IEA is likely to highlight in today's report, are most likely to pressure Brent to trade within a $72.8-73.7/bbl range later today. > Gold nudges higher amid decline in US 10y Treasury yield. Gold rose from $1,780/oz to $1,785/oz yesterday, while the US 10y Treasury yield eased from 1.48% to 1.42%. Gold is trading near $1,785/oz as we write. Today, the market awaits US PPI data, the NFIB business optimism index (both for November) and eurozone industrial production (for October). We expect bullion to trade in a $1,775-1,795/oz range today.> Base metals traded lower on Friday, with investors focused on the upcoming Fed meeting. Copper seems to be enjoying a less tight market, while thermal coal is on the rise again, following natural gas and Chinese interventions.OIL PRICES SLIDE AHEAD OF IEA MONTHLY OIL MARKET REPORTYesterday, after rising $1.0/bbl to $76.4/bbl, Brent slid back to as low as $74.2/bbl. While OPEC raised its forecasts for oil consumption in 1Q22 by a whopping 1.1 mln bpd in its monthly report yesterday, the OPEC Secretariat still sees a global market surplus next year. We note that the revisions to the demand outlook are similar to those made by the OPEC+ technical committee that met before the OPEC+ ministers' decision to keep increasing output in January. We also highlight that the supply increases scheduled this month and next will leave the group's output high enough to make global inventories start rising again - OPEC officials have indicated that they are comfortable with such an outcome, given that the supply cuts have left global stocks depleted (in OECD countries they were 207 mln bbl below their five-year average in October, according to yesterday's report).The upward revision to the 1Q22 demand estimate means that OPEC+ should not create as big a surplus when it proceeds with the plans to continue reviving oil production. Meanwhile, the expected boost to demand in 1Q22 was offset by downgrades to 2Q22 and 3Q22 and thus the full-year forecast for demand growth of 4.2 mln bpd in 2022 was little changed. Yesterday's report also said that the impact of the new Omicron variant should be mild and short-lived as the world becomes better at managing the pandemic and the related challenges.The main market highlight yesterday that forced investors to turn their attention away from the upbeat OPEC report was the news that University of Oxford researchers had found that Omicron dents the protection afforded by the Pfizer and AstraZeneca vaccines, as had been feared. Meanwhile, UK Prime Minister Boris Johnson declined to rule out further restrictions to contain the new variant. The Oxford research results echo other recent findings, which have underscored the need for booster shots, especially amid evidence that Omicron could trigger a new wave of cases. Yesterday, front-month Brent eventually settled at $74.39/bbl, fixing $0.76/bbl below the previous settlement.This morning, Brent has dipped to $73.7/bbl, with investors today eyeing the monthly IEA oil market report and US November PPI data. In our view, the renewed concerns over the Omicron variant, together with the corresponding market risks that the IEA is likely to highlight in today's report, are most likely to pressure Brent to trade within a $72.8-73.7/bbl range later today. We also highlight that the Brent futures curve is indicating a worsening outlook for prices, with backwardation in the prompt timespread inching toward a bearish contango LD NUDGES HIGHER AMID DECLINE IN US 10Y TREASURY YIELD Gold rose from $1,780/oz to $1,785/oz yesterday while the US 10y Treasury yield retreated from 1.48% to 1.42%. EUR/USD slid from 1.132 to 1.129, creating a headwind for bullion. Further negative Omicron news provided support for bullion. China reported its first case of the new strain, and the UK confirmed its first Omicron death. Meanwhile, Oxford scientists found that two shots of Pfizer or AstraZeneca vaccines give lower immunity against Omicron than against other strains. The spread of the new variant could be seen as a support for bullion if new lockdowns are implemented on the back of rising hospitalizations, which could cause developed economies to retain pandemic stimulus measures for longer than expected.Gold remains near $1,785/oz as we write. Today, the market awaits US PPI data and the NFIB business optimism index, both for November, and eurozone industrial production for October. Producer inflation is expected to touch a record 9.2% y-o-y but to ease slightly to 0.5% in m-o-m terms after reaching 0.6% in October. The business optimism index is expected to show a further improvement. The latest FOMC meeting is scheduled to commence today, and the outcome will be known later on tomorrow evening. The regulator is likely to start tapering faster from the current rate of $15 bln. Moreover, the central bank could signal a first rate hike in 2022, and the "dot plot" will probably reveal a more hawkish tone among the FOMC committee than the last update in September. We do not expect gold to exhibit significant volatility ahead of the outcome to the Fed meeting. We expect bullion to trade in a $1,775-1,795/oz corridor SE METALS MOSTLY IN THE RED, COPPER MARKET TIGHTNESS EASES; THERMAL COAL BACK ON THE RISEBase metals closed mostly in the red on Friday, though aluminum was an exception. Three-month LME contracts on copper were down 0.62% (-$59/tonne) from the previous day's close) to $9,448/tonne, nickel dropped 0.18% (-$35/tonne) to $19,711/tonne, zinc fell 0.11% (-$4/tonne) to $3,325/tonne, while aluminum rose 1.82% (+$47/tonne) to $2,654/tonne.While the upcoming Fed meeting remained the key event driving markets, investors continued to weigh the potential for Chinese stimulus in 2022. Top Chinese officials have said their priorities now include dealing with growth pressures and stabilizing the economy, so there is a likelihood that fiscal stimulus will come in early 2022, which would be supportive for raw materials demand. Meanwhile, the physical market showed some signs of easing on Friday, with copper stocks on the rise for a fourth consecutive day and the cash-to-3-month spread indicating the market is back to contango (in the nearest part of the curve). The Fed's upcoming tightening and seasonally lower demand in winter are likely to push copper quotes lower. However, supply side disruptions and the still-tight market are likely to prevent prices from sliding significantly below prevailing strong technical levels.Thermal coal prices were back on the rise following a surge in natural gas quotes, which are now being driven by geopolitics and a constantly changing weather forecast for this winter. Meanwhile, the Chinese government's increased grip over coal output capacity limits and probes into illicit mining are adding support for domestic prices. We believe thermal coal prices could enjoy a rip higher this winter, should all upside factors coincide. These include uncertainties such as unfavorable weather and further interventions by the Chinese authorities in the coal market. After the heating season and the Winter Olympics, we would expect coal quotes to