Commodities Daily - December 20, 2021

> Oil prices sliding on demand concerns as Omicron cases climb. Today, there are no major oil market events or economic data releases scheduled. We think Brent is most likely to slide to $70.70/bbl as virus-related bearish headwinds are mounting heading into the holiday period, when thinner trading volumes can exacerbate prices swings.> Bullion eventually steadies after Fed comments. Gold traded sideways near $1,800/oz on Friday, while the US 10y Treasury yield remained near 1.41%. Gold is trading near $1,800/oz as we write. Today will see few important market releases. We expect bullion to trade in a $1,795-1,810/oz corridor.> Base metals mixed on Friday; zinc and aluminum set to enjoy the winter. Base metals closed mixed on Friday as investors continued to assess the factors that are likely to remain the key drivers for prices. Zinc and aluminum have the highest near-term upside due to the likely supply constraints in 1Q22.OIL PRICES SLIDING ON DEMAND CONCERNS AS OMICRON CASES CLIMBOn Friday, Brent slid $2.35/bbl to as low as $72.65/bbl as the dollar strengthened and daily Covid-19 cases in the UK jumped to a record, while hospitalizations surged across the US. Front-month Brent eventually settled at $73.52/bbl, fixing $1.50/bbl below the previous settlement. Note that the seventh round of Iran nuclear talks will resume soon, with the EU envoy saying that the parties have reestablished common ground for negotiations but that they have weeks, not months, to revive the 2015 deal. However, among factors that could complicate these talks is the fact that China ramped up its buying of sanctioned Iranian crude last month (according to Bloomberg, citing data from intelligence firm Kpler) after Chinese independent refiners were granted extra import quotas for 2021 (official Chinese data indicates that no Iranian oil has been imported since December 2020). This morning, Brent fell toward $71.30/bbl amid the spread of the Omicron variant, as authorities are placing restrictions on air travel and investors fear further lockdowns, which would pressure crude and refined product demand. New York state broke a record for new infections and New York City Mayor Bill de Blasio called on the federal government to step up supplies of tests and antibody treatments to the city. The Dutch government, meanwhile, announced plans to enforce a stricter lockdown, while Germany's health minister warned of another virus wave caused by Omicron. The oil market structure is also showing signs of weakness - the prompt calendar spread for Brent this morning has again flipped into a bearish contango structure, indicating oversupply could be on the horizon through early 2022. Today, there are no major oil market events or economic data releases scheduled. We think Brent is most likely to slide to $70.70/bbl as virus-related headwinds are mounting as we head into the holiday period, when thinner trading volumes can exacerbate prices swings. This week, investors will be primarily focused on the weekly inventory data for US crude oil and refined products, US November consumer confidence, November personal income and spending, and durable goods orders. Still, global Omicron developments will remain the driving force for oil prices this week. Note that Anthony Fauci, US President Biden's chief medical advisor, has said lockdowns in the US will likely not be necessary even with the rise in Covid cases, though many hospitals may be strained as the Omicron variant spreads, especially in regions with lower levels of LLION EVENTUALLY STEADIES AFTER FED COMMENTSGold traded sideways near $1,800/oz on Friday, while the US 10y Treasury yield remained near 1.41%. Meanwhile, EUR/USD was in a bearish trend, sliding from 1.133 to 1.125, which created headwinds for bullion. The gold price traded higher early in the day on Friday amid resurgent Omicron strain worries after the White House's top medical adviser said that US hospitals may be stressed by the expected rush of new cases, although he said he didn't anticipate new lockdowns in the US. Meanwhile, New York City's mayor called on the federal government to increase the supply of tests and treatments for the city as the Omicron strain has caused a spike of infections. Weekly cases in the UK jumped 50% last week, while Germany has indicated that a new wave has hit. This provided support for bullion prices, which touched $1,810/oz before the US open. However, gold prices retreated after another portion of hawkish comments by Fed officials. Fed Governor Christopher Waller signaled that the Fed could start raising interest rates as early as its March meeting as a response to "alarmingly high" inflation, while San Francisco Fed President Mary Daly said that she sees two or three rate hikes in 2022. That eventually pressured the bullion price to Friday's low of $1,800/oz.Gold was trading near $1,800/oz during today's Asian session. Today, market data is limited, with only the US leading index for November due. Over the coming week we would highlight key releases such as Conference Board consumer confidence for December on Wednesday, the US PCE inflation for November, preliminary November durable goods orders both on Thursday. We expect bullion to trade in a $1,795-1,810/oz SE METALS MIXED ON FRIDAY; ZINC AND ALUMINUM SET TO ENJOY THE WINTERBase metals closed mixed on Friday. Three-month LME contracts on copper were down 0.74% (-$70/tonne from the previous day's close) at $9,438/tonne, while zinc was down 1.02% (-$35/tonne) at $3,387/tonne. Meanwhile, aluminum added 2.16% (+$58/tonne) to finish at $2,725/tonne and nickel climbed 0.12% (+$24/tonne) to $19,648/tonne.Investors have continued to weigh the various factors that are likely to drive base metal prices in the months to come. These include Fed policy tightening, the Omicron variant and its impact on the global economic recovery, and the energy crisis, as well as risks for each metal in particular. A new factor also emerged this morning - the PBoC's loan rate cut. While the Fed's hawkish stance and the continued spread of the new Covid strain spread have put a lid on base metal prices for the time being, zinc and aluminum seem to have the highest upside in the near term amid the rise in power prices and supply side disruptions. While zinc supply has been on the rise thanks to the easing energy shortage in China, we believe prices are likely to find support from the further closure of smelters in Europe. Zinc futures on the LME could surge to $3,500/tonne or higher if all of the upside risks materialize. Meanwhile, although lower demand for zinc from Chinese steelmakers (for galvanizing) in 1Q22 might weigh on prices, we only expect this factor to constrain the upswing - rather than drive a downturn - in the months to