Commodities Daily - December 2, 2020

> Oil slides on bearish API report as informal OPEC+ talks continue; EIA inventory data eyed. We think Brent is likely to break below the $46.9/bbl support level today as we anticipate a bearish EIA report and uncertainty lingers around OPEC+. This move would pave the way toward the $46.1-46.6/bbl range. Today's ADP employment report could provide some support.> Gold prices rise back above $1,800/oz on renewed US fiscal stimulus hopes. Today, investors will eye the ADP US employment report ahead of the official November jobs data on Friday. Today's report could show a larger than expected increase in private payrolls, as the US goods-producing sector has continued to benefit from the need for inventory replenishment, while demand is strong in the construction sector. We note, however, that anti-Covid restrictions may have weighed on service sector hiring, which could strengthen the ongoing push for fiscal stimulus and fuel inflationary fears, providing support for gold prices. In our view, gold is likely to test the $1,827/oz resistance level today, although the chances of gold breaking this level and moving onward to $1,841/oz look slim to us.OIL SLIDES ON BEARISH API REPORT AS INFORMAL OPEC+ TALKS CONTINUE; EIA INVENTORY DATA EYEDBrent peaked at $48.3/bbl around midday yesterday before retreating toward $47/bbl and eventually settling $0.17/bbl lower on the day at $47.42/bbl. Eurozone and US manufacturing PMIs for November provided a slight headwind, with the former falling to 53.8 from 54.8 in October as lockdown measures impeded demand, and the latter coming in at 57.5, below projections and October's 59.3. The manufacturing slowdown shows the need for further fiscal stimulus. US Treasury Secretary Steve Mnuchin and House of Representatives Speaker Nancy Pelosi held stimulus talks for the first time since the November 3 election, while a bipartisan group of senators and House members proposed $908 bln worth of coronavirus relief measures. This news boosted risk appetite, pushing EUR/USD above 1.20 and toward 1.207, though the oil price failed to follow suit, coming under pressure as OPEC+ struggled to reach a consensus during informal talks ahead of the official meeting tomorrow. The group is trying to resolve a dispute centered around Saudi Arabia and the UAE (traditionally stalwart allies) over how much crude to pump in the new year, with Abu Dhabi pursuing a more independent oil policy, highlighting that it would struggle to continue with the same deep output reductions into 2021. Bloomberg reports that delegates spent yesterday consulting with their governments and exchanging ideas over the phone. For now, progress is shrouded within the opaque world of Middle Eastern diplomacy, but some officials have privately expressed hope that they will ultimately arrive at a solution.Overnight, the API reported a 4.1 mln bbl increase in US crude stocks last week to 494 mln bbl. The buildup came amid a 1.3 mln bpd increase in imports and despite a 0.09 mln bpd increase in refinery runs. Crude stocks at Cushing fell 0.13 mln bbl. The refined product data was bearish as well, showing a 3.4 mln bbl increase in gasoline stocks and a 0.334 mln bbl increase in distillate stocks. Following the report, Brent is under pressure as we write, trading near $47/bbl. The EIA inventory report is due today at 18:30 Moscow time. The Bloomberg consensus is for a 1.98 mln bbl crude stock draw, a 2 mln bbl increase in gasoline stocks and a 1.5 mln bbl draw in distillate stocks. We expect the EIA data to show an increase in US crude inventories of 4-5 mln bbl, with additional pressure likely to come from downbeat gasoline stockpile data, as hinted at by the API release and the consensus estimates.We think Brent is likely to break below the $46.9/bbl support level today as we anticipate a bearish EIA report and uncertainty lingers around OPEC+. This move would pave the way toward the $46.1-46.6/bbl range. Today's ADP employment report could provide some support, possibly indicating that the manufacturing sector continued to hire amid the need for inventory replenishment, and with the construction sector also hiring. However, widening restrictions to combat the spread of Covid-19 may have weighed on hiring in the service sector.GOLD PRICES RISE BACK ABOVE $1,800/OZ ON RENEWED US FISCAL STIMULUS HOPESAfter hovering below $1,780/oz at the start of the day yesterday, gold began to generate positive momentum. It rose toward $1,815/oz in the second half of the day, mirroring an uptrend in EUR/USD that has resumed this morning, pushing the pair to 1.208. Fueling these moves was news that both major US parties are considering revised stimulus plans, with headlines speculating that a stimulus package could yet be passed this year. The two plans are said to range $0.5-0.9 trln and would be treated as interim measures. A number of Trump and likely Biden administration officials also urged Congress again to pass more stimulus yet this year. More headlines on Pfizer's effort to reach regulatory approvals for its Covid-19 vaccine also provided continued support to risk assets, as did headlines reiterating that the US and UK would start vaccinating medical workers within weeks. This new flurry of positive vaccine and vaccination news failed to pressure gold, which in our view suggests that the improved outlook for vaccines was almost fully priced in, following the sharp contraction in gold's safe-haven premium last month.This morning, US President-elect Joe Biden clarified that he would not immediately remove Trump-era tariffs from Chinese goods, another sign that the Biden administration intends to pursue a harder line on China than in the past but in a framework of more traditional diplomacy, meaning a mixed message for markets. Later today, investors will eye the ADP US employment report ahead of the official November jobs data on Friday. Today's report could show a larger than expected increase in private payrolls, as the US goods-producing sector has continued to benefit from the need for inventory replenishment, while demand in the construction sector is strong. We note, however, that anti-Covid restrictions may have weighed on service sector hiring, which could strengthen the ongoing push for fiscal stimulus and fuel inflationary fears, providing support for gold prices. In our view, gold is likely to test the $1,827/oz resistance level today, although the chances of gold breaking this level and moving onward to $1,841/oz look slim to us.