Commodities Daily - December 6, 2021

> Oil prices stabilize with Omicron strain remaining in focus. Today, in our view Brent is most likely to try to yet again tackle its 200-day moving average of $72.9/bbl on the latest upbeat Omicron-related news, while investors will eye US November total vehicle sales data and the start of the World Petroleum Congress in Houston. Speakers throughout the week include the OPEC secretary-general, oil ministers and company executives.> Gold advances on mixed US labor data. Gold rose from $1,770/oz to $1,780/oz on Friday, while the US 10y Treasury yield slid from 1.44% to 1.35%. Gold is trading near $1,785/oz as we write. Today, market data is thin on the ground, and we expect bullion to trade in a $1,775-1,795/oz corridor.> Metals moderately higher, with some support in the winter period likely coming. Base metals traded mostly higher on Friday. Copper retreated on Friday but is up so far today on supply-side issues, while zinc might enjoy some upside potential through the winter period on supply disruptions. Coal is trading sideways, though a market deficit and possibly unfavorable weather conditions could come together to push prices higher.OIL PRICES STABILIZE WITH OMICRON STRAIN REMAINING IN FOCUSOn Friday, front-month Brent first gained $3/bbl, rising to $72.6/bbl before sliding toward $69.2/bbl, as the spread of the Omicron strain has investors concerned about a potential hit to demand. As of Friday, the US had reported cases in six states, while the latest information indicates the new strain is now present in at least 17 states. Meanwhile, Covid-19 infections in South Africa have almost quadrupled since Tuesday. Meanwhile, US jobs data missed expectations, which possibly implies a less hawkish Fed this month. In Vienna, diplomats attempting to restore the nuclear deal between Iran and world powers face substantial challenges that need urgent solutions, the top European envoy said Friday. Talks are set to resume in the middle of this week. Brent eventually settled at $69.88/bbl, fixing $0.21/bbl above the previous settlement.What is important to highlight is that the latest sharp increase in volatility has moved oil traders away from this currently uncertain market. Combined open interest in four Brent and WTI contracts, as well as in the primary gasoline and diesel futures, plummeted to their lowest levels since July 2016, according to exchange data compiled by Bloomberg. The latest price moves (Brent plunged $10/bbl in a single day on November 26 and whipsawed again throughout last week) have pushed market volatility to its highest level since prices went negative last year and to some of the highest levels ever.This morning, Brent rallied to $71.9/bbl as Saudi Arabia raised prices of its crude, signaling confidence in the demand outlook despite the spread of Omicron. Another upbeat development is that the initial data on Omicron from South Africa (the epicenter of the outbreak) showed that although case numbers have surged, less medical intervention is being needed. Meanwhile, White House medical adviser Anthony Fauci said Sunday that the new strain does not appear to be particularly severe, while cautioning that it was too early to be certain. We think that today Brent will most likely yet again try to break through its 200-day moving average of $72.9/bbl on the latest upbeat Covid-19 news, while investors will eye US November total vehicle sales data and the start of the World Petroleum Congress in Houston, where speakers throughout the week include the OPEC secretary-general, oil ministers and company executives. This week, investors will also be eyeing the monthly EIA oil market report, weekly inventory data from the US and earnings from trading giant Trafigura Group. Also in focus this week is a raft of Chinese data, including trade figures and inflation LD ADVANCES ON MIXED US LABOR DATA Gold rose from $1,770/oz to $1,780/oz on Friday, while the US 10y Treasury yield slid from 1.44% to 1.35% and EUR/USD edged up from 1.131 to 1.132. The focus turned to US labor market data for November, which came in mixed. Nonfarm payrolls climbed by 210k, the smallest reading this year, while the consensus was more than twice higher at 550k. That was a surprise for investors, who expected to see an improvement last month given the upbeat ADP report earlier. Meanwhile, US unemployment came in at 4.2%, below the 4.5% consensus. Overall, gold found support from the data, as the FOMC meeting in December is likely to take into account the slow nonfarm payroll growth. Other news flow on Friday was not positive for bullion. The Markit and ISM US services PMIs for November were above expectations, creating headwinds for bullion. Also, the support for gold from the spread of the Omicron strain lost some strength, as initial data from the WHO suggested that it has milder effects than Delta. Gold has climbed to $1,785/oz as we write. Today, the market awaits CFTC gold positions for last week, while other data is thin on the ground. Later this week we will see US JOLTS job openings for October on Wednesday and the US CPI for November and preliminary University of Michigan consumer sentiment index for December on Friday. Gold will continue to feel pressure while the Fed remains hawkish, as it was last week, and we would not expect weak data to provide significant support for bullion. We expect gold to trade in a $1,775-1,795/oz corridor TALS MODERATELY HIGHER, WITH SOME SUPPORT IN THE WINTER PERIOD LIKELY COMINGBase metals closed in the black on Friday, although copper was an exception. Three-month LME contracts on copper were down 0.82% (-$78 from the previous day's close) to $9,418/tonne, aluminum added 0.88% (+$23) to $2,623/tonne, nickel was higher by 0.39% (+$77) to settle at $20,030/tonne, while zinc was up 0.49% (+$16) to $3,162/tonne.While copper closed lower on Friday, today it is trading higher thanks to news from Peru, where MMG's Las Bambas mine will be halting operations by mid-December due to blockade disagreements. This will add supply-side pressure to what is already a tight market. Meanwhile, zinc is another base metal that is running the risk of a significant deficit, not just this year but next year as well, as supply-side disruptions at European smelters have upset the market balance. High power costs in Europe have already forced several smelters to halt production, while what are expected to be elevated natural gas prices through the winter are likely to keep them shut and bring some new closures. There is a likelihood that zinc prices will receive support from such supply-side developments in 1Q22 before sliding back to $3,000/tonne or lower.While the Chinese are expecting the PBoC to ease monetary policy (there will probably be a cut in the reserve-requirement ratio) and provide support to small and medium-sized business, as well as green industries, the country's trade data is in focus this week. Although China is doing its best to prepare for the heating period, we expect coal imports to fall in November as the spread between domestic coal and imported coal increased significantly in November following the aggressive interventions in the domestic market that pushed futures on the Zhengzhou Commodity Exchange down to $130/tonne. With imports of less economically viable coal probably declining, risks to the optimistic scenario of the market reaching a balance in December increase, posing some upside potential to coal futures in the short term. Weather conditions are another risk that may provide support to prices too. Shall these two factors come together, we will likely see a final push higher of coal quotes before they