Commodities Daily - December 16, 2020

> Oil ticks higher despite downbeat IEA report; EIA update eyed. Today's agenda includes the EIA weekly inventory update, IHS Markit's eurozone and US preliminary December PMIs, and the Fed decision. Yesterday's US vaccine and stimulus news-driven move higher has brought Brent close to the $51.1/bbl resistance level, though we do not think today is the day when it will break through and consolidate in the $51.3- 51.5/bbl technical range. In our view, bearish refined product data in the EIA report will likely outweigh any draw in crude stocks, which, along with likely downbeat December PMI data from DMs, could push Brent back to $50/bbl.> Gold advances on US stimulus deal hopes ahead of Fed meeting outcome. We expect the dollar to weaken today after the FOMC meeting, which could help gold to extend its gains into the $1,881-1,899/oz range, if it can first clear key resistance at $1,861/oz.OIL TICKS HIGHER DESPITE DOWNBEAT IEA REPORT; EIA UPDATE EYEDAfter trading around $50/bbl at the start of the day yesterday, front-month Brent began to trend higher, peaking at $50.89/bbl during the US trading session. It eventually settled at $50.76/bbl, $0.47/bbl above the previous settlement. Investors yesterday were focused on the US stimulus talks and the rollout of Covid-19 vaccines, looking past tightening lockdowns in Europe and the IEA's forecast of a slower-than-expected recovery in fuel demand next year. The IEA oil market report, like the OPEC report released earlier in the week and EIA monthly report released last week, contained a downward revision to the global oil demand estimate for next year (-0.17 mln bpd). Europe accounted for most of this, as the IEA worries a third wave of the virus may hit the region following the holiday season, before the vaccinations begin to have an effect. The demand estimates for China, India and South Korea, meanwhile, were revised upward, as the ongoing demand recovery in these countries is expected to continue into 2021. The IEA also highlighted that "the understandable euphoria around the start of vaccination programs partly explains higher prices but it will be several months before we reach a critical mass of vaccinated, economically active people and thus see an impact on oil demand." The agency expects the crude oil glut that formed during the pandemic to clear by the end of next year.Overnight, the API reported a 2 mln bbl rise in US crude stocks last week to 495 mln bbl. The buildup came amid a 0.095 mln bpd decrease in refinery runs and despite a 0.068 mln bpd decrease in imports. The refined product data was bearish as well, showing a 0.89 mln bbl rise in gasoline stocks and a 4.8 mln bbl rise in distillate stocks. The EIA inventory report is due today at 18:30 Moscow time. The Bloomberg consensus is for a 2.2 mln bbl crude stock draw, a 1.87 mln bbl increase in gasoline stocks and a 0.85 mln bbl increase in distillate stocks. We think the EIA could report a substantial draw in crude stocks after the massive 15.19 mln bbl build last week on higher exports (after the largest weekly decrease in exports on record last week) and lower imports. However, a further strong build in refined product inventories (amid weakening demand due to surging Covid cases) could weigh on sentiment, as it would remind investors of the current market weakness. In addition to the EIA update, today's agenda includes IHS Markit's eurozone and US preliminary December PMIs, as well as the Fed decision. Yesterday's US vaccine and stimulus news-driven move higher has brought Brent close to the $51.1/bbl resistance level, though we do not think today is the day when it will break through and consolidate in the $51.3- 51.5/bbl technical range. In our view, bearish refined product data in the EIA report will likely outweigh any draw in crude stocks, which, along with likely downbeat December PMI data from DMs, could push Brent back to $50/bbl. However, any correction today is unlikely to be strong, as investors have seemed willing to overlook the worrying short-term energy demand outlook, hoping for a swift recovery next year.GOLD ADVANCES ON US STIMULUS DEAL HOPES AHEAD OF FED MEETING OUTCOMEGold was trading in a $1,825-1,835/oz range early yesterday but climbed to $1,855/oz in the afternoon and is targeting $1,860/oz as we write. The dollar weakened yesterday, and gold advanced amid encouraging news on the US stimulus front, with key politicians recommitting to reaching a compromise on a new stimulus package before the year-end after a series of meetings. Republican Senate majority leader Mitch McConnell told reporters that "we are getting closer and closer" and should to be able to reach an understanding soon. Senate Democratic leader Chuck Schumer was on the same page with his counterpart.A bipartisan group of lawmakers from the House and Senate have this week unveiled a $908 bln Covid-19 aid package in two parts, with the first $748 bln part including aid for small businesses, the unemployed and vaccine distribution. This part has received widespread support. The debate is continuing over the bill for the remaining $160 bln, which contains the most controversial provisions: additional funding for state and local governments and liability protections. President-elect Joe Biden has urged Congress to act quickly before he takes office on January 20. Reuters reported that even if it does, the new administration will likely seek another round of aid next year. In terms of gold's price drivers, the US stimulus talks are currently prevailing over negative factors, which include the US Foundation for Government Accountability making a positive recommendation on a second Covid-19 vaccine (Moderna's) ahead of a panel review tomorrow and rising hopes for a post-Brexit trade deal after the UK watered down a key demand on fishing rights. Given the upcoming holidays, today will see the earlier than usual release of preliminary PMIs from the US and eurozone, which we expect to be weak due to the difficult Covid-19 situation. Today's main focus will be on the Fed decision. US infection numbers are worsening and there is still no new stimulus package, but the market has begun brushing these factors aside in light of the rollout of mass vaccinations in the US. We think the Fed will acknowledge these factors and refrain from announcing any new stimulus measures. We expect it to merely clarify the outlook for its QE program, which could remain in place for several years while the economy recovers. The Fed's new economic forecasts may point to a substantial recovery in 2021, which would support risk sentiment and inflation expectations. Given all of this, we expect the dollar to weaken today and gold to extend its gains into the $1,881-1,899/oz range, if it can first clear key resistance at $1,861/oz.