Commodities Daily - December 4, 2020

> Oil rises on OPEC+ compromise deal, renewed US stimulus hopes. Today, investors will be focused primarily on the US November jobs report, which in our view could surprise to the upside, providing tailwinds for oil prices. We think Brent is likely to consolidate in a $49.5-50.0/bbl range today after breaking above resistance at $49.20/bbl this morning on optimism over the OPEC+ deal and hopes of fresh US fiscal stimulus before the year-end.> Gold rally stalls around $1,840/oz ahead of US jobs report. The focus today will be on the US jobs report. The most recent weekly jobless claims data was significantly better than expected, while recent US macro data has been positive despite the challenging virus situation. In light of this, we think nonfarm payroll gains could top the 475k consensus estimate. If that is the case, it could drive demand for dollars (especially going into the weekend, when caution usually prevails), We therefore expect gold to struggle to consolidate within the $1,855-1,872/oz range after clearing resistance at $1,841/oz this morning. EUR/USD also still has potential to weaken further into the year-end.OIL RISES ON OPEC+ COMPROMISE DEAL, RENEWED US STIMULUS HOPESDuring the first half of the day yesterday, Brent traded in a $47.7-48.5/bbl range, with investors focused on the start of the official OPEC+ negotiations. After almost a week of talks and the failure to reach an agreement at the OPEC meeting on Monday, the OPEC+ ministers were eventually able to agree on a compromise deal yesterday. Under the new deal, the group's combined production will rise by 0.5 mln bpd in January, followed by potential increases of up to 0.5 mln bpd in each subsequent month until member states reach the "phase three" quotas (i.e. a cumulative 1.9 mln bpd increase). This means that it may take several months to reach phase three, which is still set to end in April 2022. We note that the earliest the phase three quotas could be reached is next April, while OPEC+ has also given itself the option to cut group output by up to 0.5 mln bpd per month if needed.Starting in January, OPEC+ ministers will meet at the beginning of each month to decide whether to adjust quotas for the following month. Under the new deal, there are many possible trajectories for the level of OPEC+ production early next year. Production in March could be up to 1.5 mln bpd higher than the current level (if the already agreed upon rise in January is followed by commensurate output hikes in February and March). On the other hand, production could theoretically be 0.5 mln bpd lower (if the rise in January is followed by two 0.5 mln bpd decreases). Energy Aspects highlighted yesterday that production increases are far more likely than reductions. We agree, as we think reductions will only occur if the market weakens unexpectedly. The deal also requires members that are currently less than 100% compliant (since the deal started in May) to make up for their under-compliance by the end of next March.Later yesterday, Brent rose toward $49/bbl as expectations for a compromise built up. We note that the group had been indicating that it was determined to avoid a price war after OPEC failed to agree on Monday. The new approach of OPEC+ makes sense to us, as it will prevent the market from being crushed by a flood of extra supply. Moreover, the group seems to be cautiously optimistic in general. Most importantly, by deciding not to boost production by 1.9 mln bpd in January (as per the previous deal terms), OPEC+ will avoid a 0.5 mln bpd stock build in 1Q21. The now gradual increase in supply means that a crude stock draw of 0.1 mln bpd on average in 1Q21 can be expected, which opens the path for Brent to move to $50/bbl and beyond. We also note that soaring Asian product demand, which has been providing strong support for diesel refining economics, should help the market easily absorb the 0.5 mln bpd production increase in January.Front-month Brent settled at $48.71/bbl, fixing $0.46/bbl above the previous settlement. Today, investors will be focused primarily on the US November jobs report, which in our view could surprise to the upside, providing tailwinds for oil prices. We think Brent is likely to consolidate in a $49.5-50.0/bbl range today after breaking above resistance at $49.20/bbl this morning on optimism over the OPEC+ deal and hopes of fresh US fiscal stimulus before the year-end.GOLD RALLY STALLS AROUND $1,840/OZ AHEAD OF US JOBS REPORTGold has rallied all the way from $1,770/oz this week and yesterday pushed on to $1,840/oz before consolidating within a $1,830-1,840/oz range. Support continued to come from a weakening dollar, with EUR/USD surging to as high as 1.275. Playing against the dollar were reports of progress in negotiations among US lawmakers over a new fiscal stimulus package. Some US Republicans are willing to support the Democrats' interim stimulus proposal of around $900 bln. It is unclear whether a majority of the Senate will support the plan, which could be deployed before the year-end. This situation boosted inflation expectations in the US by 12 bps yesterday to 2.12% on a 10-year horizon, as well as gold, given that it acts as a hedge against inflation. Investors also took notice of news that Pfizer has reported logistical issues with its vaccine, which will mean lower deliveries than planned in the final weeks of the year. This could support gold. Meanwhile, EU-UK talks on a post-Brexit trade deal have reportedly hit a snag at the last minute.As we write, the dollar appears poised to retrace some of those losses, with the euro looking a little overbought at current levels. The focus today will be on the US jobs report. The most recent weekly jobless claims data was significantly better than expected, while recent US macro data has been positive despite the challenging virus situation. In light of this, we think nonfarm payroll gains could top the 475k consensus estimate. If that is the case, it could drive demand for dollars (especially going into the weekend, when caution usually prevails). We therefore expect gold to struggle to consolidate within the $1,855-1,872/oz range after clearing resistance at $1,841/oz this morning. EUR/USD also still has the potential to weaken further into the year-end.