Commodities Daily - December 17, 2020

> Oil advances on upbeat weekly EIA inventory report amid US stimulus deal progress. Today, the oil market will be focused on the eurozone CPI for November, US weekly jobless claims, November housing starts and the December Philadelphia Fed business outlook index. We expect oil to continue to draw support from optimism around the new US spending package, which is boosting oil demand expectations and is weighing strongly on the dollar as we write, bringing an additional oil price tailwind. We think the upside for Brent today will be limited to the $51.9-52.2/bbl range.> Gold prices gain more ground as EUR/USD breaks higher. Today, the US FDA is expected to review the Moderna Covid-19 vaccine, meaning a second Covid-19 vaccine could be approved in the US in the very near future. This provides slight gold price headwinds. Today, investors will eye the BoE, Swiss, Mexican and several other central banks' rate decisions. Also on the agenda are eurozone CPI, as well as housing starts and jobless claims from the US. Note that the BoJ decision and Japanese CPI are due overnight. In our view, gold is likely to extend its gains into the $1,881-1,899/oz range today.OIL ADVANCES ON UPBEAT WEEKLY EIA INVENTORY REPORT AMID US STIMULUS DEAL PROGRESSYesterday morning, Brent was largely trading sideways within a tight $50.5-51.0/bbl range, with the focus on IHS Markit's preliminary eurozone PMI data for December, which surprised to the upside and provided a tailwind for oil. The manufacturing PMI rose from 53.8 to 55.5, while the services PMI surged from 41.7 to 47.3 (in part indicating optimism stemming from the vaccines). The composite PMI climbed to 49.8 in December from 45.3 in November. This rather upbeat data implies that the eurozone economy is proving resilient to the second lockdown, although the more stringent measures adopted in Germany and the Netherlands this week mean that the final indexes could be lower and that the worst may still be to come. Later in the day, US November retail sales surprised to the downside, while IHS Markit's preliminary December US PMI data was slightly disappointing, especially in the services category.Ahead of the EIA inventory report, Brent was trading near $50.7/bbl. The report indicated a rather strong 3.13 mln bbl draw in US crude stocks to 500.1 mln bbl last week, amid a 1.05 mln bpd decrease in imports to 5.42 mln bpd, a 0.79 mln bpd increase in exports to 2.63 mln bpd and a 0.1 mln bpd decrease in crude production to 11 mln bpd. A 0.25 mln bpd decrease in refinery inputs to 14.18 mln bpd failed to offset the overall draw. The EIA refined product data was on the bearish side: gasoline stocks rose 1.02 mln bbl to 238.9 mln bbl and distillate stocks ticked 0.17 mln bbl higher to 151.3 mln bbl. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) fell 6.24 mln bbl with the help of a 3.7 mln bbl draw in propane stocks and a 1.5 mln bbl draw in the "other oils" category. The gasoline market remains a key source of weakness and has now registered five straight weeks of increases. With most people working from home and many students learning remotely, demand has certainly been weak. A lack of long road trips during the US Thanksgiving celebrations bodes ill for traders hoping for a resurgence in gasoline demand over the Christmas period and will likely prevent stock draws over the short term. Meanwhile, distillates are showing signs of stabilization after three straight weeks of declines and are moving back toward pre-pandemic levels. The need to keep trucks and trains moving for freight and mail orders has been a source of support for the distillates markets. Following the EIA report release, Brent gained around $0.5/bbl and eventually settled at $51.08/bbl, up $0.32/bbl on the day.This morning, Brent peaked at $51.7/bbl as US lawmakers edged closer toward a new stimulus agreement of nearly $900 bln, with Bloomberg reporting that staff members are currently trying to write the text of the bill so that the House and Senate can vote on it this week. Today, the oil market will be focused on the eurozone CPI for November, US weekly jobless claims, November housing starts and the December Philadelphia Fed business outlook index. We expect oil to continue to draw support from optimism around the new US spending package, which is boosting oil demand expectations and is weighing strongly on the dollar as we write, bringing an additional oil price tailwind. We think the upside for Brent today will be limited to the $51.9-52.2/bbl range.GOLD PRICES GAIN MORE GROUND AS EUR/USD BREAKS HIGHERYesterday, gold was trading sideways, largely mirroring EUR/USD. During the first half of the day, bullion rallied around $14/oz to $1,865/oz as EUR/USD climbed above 1.22 amid strong eurozone preliminary PMIs for December. However, soon after that EUR/USD weakened sharply, almost to 1.21, with gold sliding to $1,845/oz, following the Fed meeting at which rates and the QE program were left unchanged. The Fed stated that monthly asset purchases would remain at the current level of $80 bln in USTs and $40 bln in MBS until significant progress has been made toward full employment and price stability. It also upgraded its economic forecasts and noted the positive impact the vaccine would have, although saying that the effect would largely appear only in 2H21. Considering that, according to the updated forecasts, unemployment and inflation will only approach the target levels in 2022 and reach them in 2023. Also note that it appears that the Fed plans to leave its asset purchases unchanged for at least two years. Note, however, that later Jerome Powell managed to quell an initial market selloff by offering reassurance that a very vigilant Fed would not hesitate to expand support if necessary. This, along with remarks from top US lawmakers committing to a stimulus package before year-end, boosted both EUR/USD and gold prices overnight, with more tailwinds coming this morning. The euro is now trading near 1.223 while bullion has hit the $1,870/oz mark. Today, the US FDA is expected to review the Moderna Covid-19 vaccine, meaning a second Covid-19 vaccine could be approved in the US in the very near future. This provides slight gold price headwinds. Meanwhile, the UK and EU have likely finished their negotiations over a "level playing field" and are now debating the last major sticking point in a Brexit trade deal, fishing rights, according to Bloomberg. Today, investors will eye the BoE, Swiss, Mexican and several other central banks' rate decisions. Also on the agenda are eurozone CPI, as well as housing starts and jobless claims from the US. Note that the BoJ decision and Japanese CPI are due overnight. Note that the BoJ decision and Japanese CPI are due overnight. In our view, gold is likely to extend its gains into the $1,881-1,899/oz range today.