Commodities Daily - December 9, 2021

> Oil prices ticked higher despite downbeat EIA inventory report. This morning, Brent rose to as high as $76.7/bbl. So far, demand hasn't taken a big hit from the new Covid variant, although some nations have implemented restrictions on air travel. UK Prime Minister Boris Johnson has tightened pandemic rules and advised people to work from home. After digesting China's mixed November CPI and PPI data this morning, investors will focus on the US weekly jobless claims. With the Omicron relief rally now seemingly losing steam, we think Brent is unlikely to break above its 100-day moving average of close to $77/bbl today.> Gold edges lower on US labor market data. Gold edged lower from $1,785/oz to $1,780/oz yesterday, while the US 10y Treasury yield rose from 1.47% to 1.51%. It has bounced back to the $1,785/oz level this morning. Ahead of the US inflation data tomorrow, investors look set to be cautious and we do not expect high volatility in the gold market. Overall, we expect bullion to trade in a $1,775-1,795/oz corridor today.> Base metals trade sideways, with zinc an outperformer; coal following gas prices higher. Trading in base metals was fairly subdued yesterday, though zinc soared on supply-side risks. Today, investors are weighing this morning's Chinese inflation data, while thermal coal is back on the rise amid surging natural gas prices.OIL PRICES TICKED HIGHER DESPITE DOWNBEAT EIA INVENTORY REPORTYesterday, after trading near $75/bbl, front-month Brent ticked higher and began trading near $76/bbl on cautious optimism that existing Covid-19 vaccines are effective against the new virus variant and despite the EIA weekly inventory report being on the bearish side. Brent eventually settled at $75.82/bbl, fixing $0.38/bbl above the previous settlement. Yesterday's EIA data showed a modest 0.24 mln bbl crude oil weekly draw despite a drop in exports, while refinery inputs rose and overall imports fell. However, it is worth highlighting that crude imports to the Midwest jumped to a record high of 3.4 mln bpd. A likely contributing factor there was that weekly imports from Canada (a big supplier of refineries in the region) climbed to their highest level in two months. US crude production, meanwhile, was up once again (+0.1 mln bpd to 11.7 mln bpd), reaching the highest since May 2020, as drillers, notably private ones, are steadily raising output buoyed by higher crude prices.Crude stockpiles at Cushing meanwhile rose by the most since February, with 2.37 mln bbl of crude added last week. That was enough to take the volume stored at this WTI delivery point above the psychologically important 30 mln bbl level for the first time in seven weeks. Note that previous expectations that stockpiles there would drain to operational lows had infused volatility into WTI prices and calendar spreads. Gasoline inventories were up 3.88 mln bbl to 219.3 mln bbl as its production keeps increasing while the Omicron variant hasn't slowed down gasoline consumption so far. The four-week average of seasonal gasoline demand rose to 9.08 mln bpd, which is the highest for this time of year since 2015. Jet fuel demand on the other hand fell sharply last week. The decline offsets gains made last week and brings the four-week moving average to its lowest level since July at 1.46 mln bpd. Potential travel restrictions due to the Omicron variant have weighed on the outlook for jet fuel demand.This morning, Brent rose to as high as $76.7/bbl. So far, demand hasn't taken a big hit from the new Covid variant, although some nations have implemented restrictions on air travel. UK Prime Minister Boris Johnson has tightened pandemic rules and advised people to work from home. After digesting China's mixed November CPI and PPI data this morning, investors will focus on the US weekly jobless claims. With the Omicron relief rally now seemingly losing steam, we think Brent is unlikely to break above its 100-day moving average of close to $77/bbl LD EDGES LOWER ON US LABOR MARKET DATAGold edged lower from $1,785/oz to $1,780/oz yesterday, while the US 10y Treasury yield rose from 1.47% to 1.51%. Meanwhile, EUR/USD appreciated from 1.128 to 1.135. Bullion was under pressure from JOLTS jobs openings for October, which hit a record 11 mln versus the 10.5 mln expected. This could suggest more hawkish Fed rhetoric at the upcoming meeting. Meanwhile, ECB Vice President Luis de Guindos said elevated inflation could stay longer in Europe than previously expected, but that so far there is no evidence that wages are reacting to the price pressures. This could signal more hawkish ECB rhetoric and a faster than expected tapering of the pandemic-era stimulus, which would eventually be positive for bullion as the dollar would weaken. During the Asian session today, gold bounced back to the $1,785/oz level. Today, the market awaits US weekly initial jobless claims and the final reading of US wholesale inventories for October. Ahead of the US inflation data tomorrow, investors look set to be cautious and we do not expect high volatility in the gold market. Overall, we expect bullion to trade in a $1,775-1,795/oz corridor SE METALS TRADE SIDEWAYS, WITH ZINC AN OUTPERFORMER; COAL FOLLOWING GAS PRICES HIGHERBase metals mostly closed higher yesterday. Three-month LME contracts on copper rose 0.60% (+$58/tonne from the previous day's close) to $9,653/tonne, nickel climbed 0.20% (+$41/tonne) to $20,230/tonne and zinc surged 2.59% (+$83/tonne) to $3,310/tonne, while aluminum edged down 0.06% ($2/tonne) to $2,627/tonne.While trading in most base metals was fairly restrained yesterday, zinc strongly outperformed. The metal extended its recent gains as investors weighed the prospects of increased demand in the short term as well as risks to supply over the medium term. Today, investors are examining China's November inflation data, which showed consumer price growth at a 15-month high of 2.3% y-o-y due to a surge in food prices. Meanwhile, the producer price index moderated to 12.9% (still above expectations) from the 26-year high reached in October thanks to efforts to tame soaring commodity prices and deal with the energy crunch. A slowdown in the inflation figures going forward could provide room for further easing in 2022, after the PBoC cut the reserve-requirement rate by 50 bps on Monday. This would be positive for base metals over the medium term.Coal is back on the upswing, following gas prices higher, with all eyes on the weather conditions. Lower temperatures might increase demand for heating fuels, which would be bullish for gas (for which inventories are now pretty low) and hence coal. The La Nina phenomenon has already brought wetter weather in Australia, which might put a lid on the production of coal and slow down its transport from mines to ports. China now seems to be prepared for the heating season, but if the weather this winter is bad we could see a rally in coal