Commodities Daily - December 9, 2020

> Bearish API inventory update weighs on oil prices ahead of EIA data. We think Brent could dip below the $48.4/bbl support level today and consolidate in the $47.5-$47.9/bbl range, as we anticipate a bearish EIA inventory update following the API's downbeat release overnight. We see further losses as unlikely given the signs of progress toward a fiscal stimulus deal in the US. Also supportive for oil prices have been reports that Iraqi militants attacked two wells in the oil-producing Kirkuk region, which caused Brent to reverse a decline driven by a jump in US fuel stockpiles. If, however, the weekly EIA report surprises to the upside, Brent could begin to rise toward the $49.20-49.50/bbl range.> Gold pressured by vaccine rollouts but supported by fresh stimulus hopes. Gold bulls are bracing for more positive remarks about the prospects for US stimulus, including from Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi. If today sees further encouraging news on the stimulus front, demand for risk assets and gold should be strong. Today we think gold is likely to start paring back losses from this morning and may test resistance at $1,881/oz, with a break above possibly leading to a gain to $1,899/oz.BEARISH API INVENTORY UPDATE WEIGHS ON OIL PRICES AHEAD OF EIA DATAYesterday, front-month Brent traded sideways within a $48-49/bbl range. During the US session, it was supported by a stock market rally (both the S&P 500 and NASDAQ Composite posted record closing highs) on encouraging Covid-19 vaccine news but pressured by a downbeat monthly EIA report. Regarding the former, Johnson & Johnson said it could obtain late-stage trial results for a single-dose Covid-19 vaccine it is developing earlier than expected, while Pfizer is close to getting its vaccine approved for emergency use in the US after the FDA published documents that did not indicate any new safety or efficacy issues. The EIA's monthly oil market report was mostly downbeat. Following the recent surge in oil prices and the active US oil rig count, the agency now forecasts that US crude oil production will fall just 0.24 mln bpd in 2021 (versus 0.29 mln bpd previously), to an average of 11.1 mln bpd. It anticipates that it will drop below 11 mln bpd next March, as it expects the decline in production at existing wells to outpace the increase in production from newly drilled wells in the coming months. Also on the bearish side was the EIA's 0.64 mln bpd downgrade to its previous forecast of global demand in 2021 (now seen averaging 98.16 mln bpd, up from 92.4 mln bpd in 2020). Brent eventually settled at $48.79/bbl, fixing $0.77/bbl below the previous settlement. Overnight, the API reported a 1.14 mln bbl rise in US crude stocks last week to 493 mln bbl. The buildup came amid a 1.28 mln bpd increase in imports and despite a 0.04 mln bpd increase in refinery runs. Crude stocks at Cushing fell 1.8 mln bbl. The refined product data was bearish as well, showing a 6.44 mln bbl rise in gasoline stocks and 2.32 mln bbl rise in distillate stocks. The jump in gasoline stocks came amid a surge in Covid-19 cases in US coastal states (recent data showed a drop-off in traffic in New York City). Brent came under pressure following the release and remains under pressure as we write, hovering just above $48.5/bbl. The EIA inventory report is due today at 18:30 Moscow time. The Bloomberg consensus is for a 1.03 mln bbl crude stock draw, a 2 mln bbl increase in gasoline stocks and a 0.9 mln bbl increase in distillate stocks. We expect the EIA data to show an increase in US crude stocks of 4-5 mln bbl, with further disappointment likely coming from gasoline inventories (based on the API release and the consensus estimates). With that in mind, we think Brent could dip below the $48.4/bbl support level today and consolidate in a $47.5-$47.9/bbl range, though we see further losses as unlikely given the signs of progress toward a fiscal stimulus deal in the US. As we write, stock markets are being buoyed by hopes that relief is on the way in the US after Treasury Secretary Steven Mnuchin said that he had presented a new $916 bln proposal to House Speaker Nancy Pelosi. Also supportive for oil prices have been reports that Iraqi militants attacked two wells in the oil-producing Kirkuk region, which caused Brent to reverse its decline driven by the jump in US fuel stockpiles. If the weekly EIA report surprises to the upside, Brent could rise to the $49.20-49.50/bbl range.GOLD PRESSURED BY VACCINE ROLLOUTS BUT SUPPORTED BY FRESH STIMULUS HOPESDuring the first half of the day yesterday, gold was consolidating within the $1,860-1,870/oz range after rallying by around $35/oz on Monday. Early in the US session it managed to break out of this range to $1,875/oz, although this proved short-lived and bullion began to ease, first to $1,870/oz and then to $1,860/oz this morning. The gold price gains during the US trading session yesterday were rather limited considering the strength of the stock market rally (the S&P 500 and NASDAQ Composite both reached new record highs). This was because stocks advanced on encouraging Covid-19 vaccine news, which is negative for gold. Johnson & Johnson said it could obtain the late-stage trial results of the single-dose Covid-19 vaccine it is developing earlier than expected, while Pfizer is close to getting its Covid-19 vaccine approved for emergency use after the US health regulator released documents that raised no new safety or efficacy issues.Meanwhile, gold bulls are bracing for more positive remarks about the prospects for US stimulus, including from Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi. Yesterday, Mnuchin presented Pelosi a new $916 bln fiscal stimulus plan, which was well received by Democrats. If today sees further encouraging news on the stimulus front, demand for risk assets and gold should be strong. Small signs of improvement in Brexit negotiations were also supportive for Europe. Meanwhile, an unexpectedly weak Chinese CPI print released this morning is negative for gold (by diminishing demand for gold as a hedge against inflation). Today we think gold is likely to start paring back losses from this morning and may test resistance at $1,881/oz, with a break above possibly leading to a gain to $1,899/oz.