Commodities Daily - December 18, 2019

> Oil climbs on upbeat US macro data before sliding after bearish API report; EIA data eyed. We think that a crude build of 2 mln bbl may be in the cards, as the EIA is likely to confirm the API's reported counter-seasonal drop in refinery runs and report a slight decrease in exports, in our view. Given a very high likelihood of the refined products category also being bearish like the API data amid suppressed demand, we think the EIA report could provide sufficient impetus for Brent to break below the $65/bbl mark. We see strong technical support at $64.64/bbl, so a move below this mark is unlikely. Furthermore, any correction could be short lived given the prevailing market optimism amid the US-China phase one trade deal, Saudi Arabia cutting planned production deeper in 1Q20 and a slowdown in US oil production growth.> Gold prices stable despite strong macro data from US. Christine Lagarde and several Fed officials will speak today, while the UK and eurozone will issue inflation data. We do not expect to see significant movements in gold prices today - we expect it to trade around the $1,480/oz level.OIL CLIMBS ON UPBEAT US MACRO DATA BEFORE SLIDING AFTER BEARISH API REPORT; EIA DATA EYEDIn the buildup to yesterday's European session, front-month Brent gained $0.3/bbl and almost hit the $65.6/bbl mark. However, after European trading commenced, stock markets dropped from record highs and Brent slid to $65.1/bbl amid fears of a hard Brexit after Boris Johnson reiterated plans to set a hard deadline of December 2020 to reach a new trade deal with the EU. Some fear that it will be difficult to strike a deal within this time frame, with the UK formally leaving the EU on January 31 and entering a transition period. However, the oil price correction was short-lived, and Brent swiftly pared back all losses, with investors starting to focus on US housing starts and industrial production data. US housing starts increased 3.2% in November, which is more than expected, with the November US industrial production data (manufacturing sector makes up about 11% of the US economy) released later impressing oil investors even more. Industrial output rebounded strongly m-o-m, rising 1.1% (beating the 0.9% growth consensus) after a downwardly revised 0.9% fall in October, while the production of motor vehicles and parts jumped 12.4% in November. This had much to do with the union reaching a new four-year labor contract with General Motors in late October, ending a strike by 46,000 workers. The upbeat data provided strong tailwinds for oil, and Brent managed to break above the $66/bbl mark during the Wall Street session, hitting an intraday high at $66.24/bbl. It eventually settled at $66.1/bbl, $0.76/bbl above the previous settlement.Overnight, the API reported that US crude stocks increased by a very strong 4.7 mln bbl to 452 mln bbl last week (the EIA's latest report also estimated them at 448 mln bbl). The buildup came amid a 0.35 mln bpd decrease in refinery runs and despite a 0.2 mln bpd drop in imports to 6.7 mln bpd. The refined product data was also strongly bearish, showing a 5.6 mln bbl build in gasoline stocks and a 3.7 mln bbl increase in distillate inventories. The buildup across all categories weighed on Brent, which retreated to $65.7/bbl this morning. Ahead of today's EIA inventory data (18:30 Moscow time), investors will be digesting UK and eurozone inflation data. The Bloomberg consensus for the EIA data is for a 1.75 mln bbl draw in crude inventories, a 2 mln bbl increase in gasoline stocks and a 0.4 mln bbl draw in distillate stockpiles. We think that a crude build of 2 mln bbl may be in the cards, as the EIA is likely to confirm the API's reported counter-seasonal drop in refinery runs and report a slight decrease in exports, in our view. Given a very high likelihood of the refined products category also being bearish like the API data amid suppressed demand, we think the EIA report could provide sufficient impetus for Brent to break below the $65/bbl mark. We see strong technical support at $64.64/bbl, so a move below this mark is unlikely. Furthermore, any correction could be short lived given the prevailing market optimism amid the US-China phase one trade deal (although yesterday the Fed's Kaplan said that trade issues with China will continue for years), Saudi Arabia cutting planned production deeper in 1Q20 and a slowdown in US oil production LD PRICES STABLE DESPITE STRONG MACRO DATA FROM USGold prices traded in a narrow range of $1,474-1,480/oz yesterday. Data on US new housing starts (1,365k versus the consensus of 1,345k) and industrial production (1.1% versus the consensus of 0.9%) for November led to a small $5/oz intraday drop in the gold price, but this ended up being retraced by the end of the day and gold closed flat. Today, ECB President Christine Lagarde will speak, as will several Fed officials (Evans, Brainard), while inflation figures from the UK and eurozone will be released. We do not expect to see significant movements in gold prices today - we expect it to trade around the $1,480/oz