Commodities Daily - December 3, 2020

> Oil prices rise ahead of OPEC+ video conference. Today, oil investors await the results of the official OPEC+ meeting. The ministers are reportedly inching closer to a compromise after two days of informal talks. OPEC+ officials are reportedly discussing a more limited adjustment to the current deal than the initially proposed three-month delay to easing the production cuts. In our view, the options currently being discussed would all but wipe out the currently expected 1Q21 stock builds, especially given the strong demand from Asia. We think that OPEC+ is most likely to eventually agree on improving the terms of the deal. And even though the improvement is likely to fall short of initial expectations, we think Brent could rise toward resistance at $48.7/bbl following the announcement, with a break above possibly leading to a further push upward to $49.20/bbl.> Gold prices keep rising on hopes for new US fiscal stimulus. In the spotlight today will be November service PMIs from major global economies. They are expected to be solid (with the exception of Europe), boosting demand for risk and gold, in our view. We note that the euro may take a breather following its strong rally over the past few days and hold near current levels today, which would in turn put the brakes on gold's rally. In our view, any gains will be limited to $1,841/oz today, where we would expect prices to consolidate.OIL PRICES RISE AHEAD OF OPEC+ VIDEO CONFERENCEAfter trading near $47/bbl at the start of the day yesterday, front-month Brent climbed to $47.7/bbl just ahead of the weekly EIA inventory update, which showed a 0.68 mln bbl draw in US crude stocks to 488 mln bbl last week. The drawdown came amid a 0.63 mln bpd increase in exports to 3.46 mln bpd. A 0.25 mln bpd decrease in refinery inputs to 14 mln bpd, a 0.17 mln bpd increase in imports to 5.4 mln bpd and a 0.1 mln bpd rise in crude output to 11.1 mln bpd were insufficient to offset the draw. The EIA's refined product data was downbeat: gasoline stocks rose 3.5 mln bbl to 233.6 mln bbl and distillate stocks swelled 3.24 mln bbl to 145.9 mln bbl. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) showed a very rare weekly build, although a very small one at just 0.116 mln bbl. The US Thanksgiving holiday failed to support gasoline demand, which remains at the lowest levels since the 1990s, a trend that is expected to continue through Christmas. Despite the several disappointing data points in the EIA report, Brent went on to surge toward $48.8.bbl and eventually settled at $48.25/bbl, up $0.83/bbl on the day. It was supported by Britain's approval of a Covid-19 vaccine, which boosted hopes for a recovery in demand, and indications of tentative progress toward an agreement among OPEC+ members.Today, oil investors await the results of the official OPEC+ meeting The ministers are reportedly inching closer to a compromise after two days of informal talks. OPEC+ officials are reportedly discussing a more limited adjustment to the current deal than the initially proposed three-month delay to easing output cuts. Among the options being discussed are a shorter than three-month extension to the current 7.7 mln bpd in production cuts and stretching the change in quotas over several months. As we understand, the group is most likely to leave the current arrangement in place through January and then raise production by 1 mln bpd in February and March, before moving to phase three and lifting output another 1 mln bpd at the start of April. The delay to phase three and the incremental output hikes would reduce OPEC+ output in 1Q21 by 0.5-1.0 mln bpd (compared with the terms of the current deal), depending on the exact details, and would likely lead to a small inventory draw in the quarter amid strong Asian demand. The key for the OPEC+ meeting is finding a compromise that will bridge the gap between the positions of Saudi Arabia and the UAE. We think that OPEC+ is most likely to eventually agree on improving the terms of the deal. And even though the improvement is likely to fall short of initial expectations, we do not think that Brent will finish the day with a loss. In our view, it could even tick higher following the announcement, rising toward resistance at $48.7/bbl, with a break above possibly leading to a further push upward to $49.20/bbl. This week's trading has shown that there are very few shorts in the market, as prices barely moved following OPEC's surprising failure to reach an agreement on Monday. Even if today's meeting ends without an improved deal and OPEC+ looks set to boost production by 2 mln bpd in January, the resulting selloff could be limited to just a few dollars thanks to strong Asian demand and vaccine optimism.GOLD PRICES KEEP RISING ON HOPES FOR NEW US FISCAL STIMULUSAfter hovering above the $1,810/oz mark at the start of the day yesterday, gold began to generate positive momentum, rising toward $1,830/oz midday. Not long before the US open, the euro started firming, and by the evening it had managed to break through 1.21 against the dollar, reaching the strongest levels since April 2018 - a fact that is strongly supportive for gold. Markets found support from perceived rising prospects for an interim stimulus deal yet this year. In addition, news that the UK would start vaccinating high-risk populations with Pfizer's vaccine as soon as next week also supported risk appetite while failing to pressure gold. Gold closed at $1,831/oz and is pushing toward $1,840/oz this morning.This morning, investors are digesting the overnight passage of a bill by the US House of Representatives that could see Chinese companies kicked off US exchanges, a reminder that the trade war with China has not ended and may yet rattle markets even after Donald Trump leaves the White House. In the spotlight today will be November service PMIs from major global economies. They are expected to be solid (with the exception of Europe), boosting demand for risk and gold, in our view. We note that the euro may take a breather following its strong rally over the past few days and hold near current levels today, which would in turn put the brakes on gold's rally. In our view, any gains will be limited to $1,841/oz today, where we would expect prices to consolidate.