Commodities Daily - February 1, 2021

> Oil starts eventful week on a positive note. Following this morning's downbeat IHS Markit January manufacturing PMI for China, today investors will focus on January eurozone and US manufacturing PMIs and Bloomberg's January OPEC production estimates, which will likely show production increasing by less than 0.3 mln bpd, which was agreed upon late last year. This morning, Brent is on track to test a $55.5/bbl resistance level, with upside today likely to be limited to the $56.2/bbl mark, in our view. Meanwhile, support is at $54.6/bbl (today's intraday low so far), which we do not expect to be retested, especially if the DM manufacturing PMI data remain strong, as we expect.> Spectacular Reddit-inspired rally in silver in focus, gold prices lower. This week, investors will be watching how much havoc the ranks of retail traders can wreak in the silver market, which is bigger and more liquid than recent targets. Friday's weekly CFTC data on futures and options showed that money managers have followed the trend, increasing their bullish silver bets, with net-long position at the most bullish in three weeks. Today, we expect the speculative bullish run to continue. We think gold will retest this month's high of 1,875/oz, while silver will likely break above the $30/oz mark.OIL STARTS EVENTFUL WEEK ON A POSITIVE NOTEOn Friday, oil prices behaved similarly to Thursday, rallying midday (Brent gained around $1/bbl, almost touching the $56.4/bbl mark) before paring back all of these gain during the US trading session. The new front-month Brent contract for April eventually settled at $55.88/bbl on Friday, fixing $0.35/bbl above the previous settlement. One of the factors providing headwinds was the release of the EIA 914 report, which showed US crude oil production having risen by a strong 0.69 mln bpd m-o-m to 11.124 mln bpd in November, which corresponded with the oil price rally the same month. We expect shale oil producers to focus on debt reduction rather than growth this year. This should mean that capex remains low this year, with the lion's share of planned investment going toward finishing drilled but yet to be completed wells. As a result, the US upstream sector will look to stabilize production rather than grow output in 2021. Also, a recent Bloomberg report highlighted that Chevron will wait until it has a firmer read on the trajectory of the pandemic and OPEC+ before resuming its ambitious plan to grow shale oil output in the Permian Basin. This now may take place only in 2H21 or early 2022. Meanwhile, Friday's Baker Hughes data showed US oil rigs having risen by six units to 295 last week.This morning, Brent is trending higher amid the rally in Asian shares, while US stock futures are recouping early losses. This is also despite this morning's downbeat IHS Markit January manufacturing PMI for China (down to 51.5 from 53 last month, albeit this is still in growth territory), which has been hit by a wave of coronavirus infections. Today, investors will also focus on January eurozone and US manufacturing PMIs and Bloomberg's January OPEC production estimates, which will likely show production increasing by less than 0.3 mln bpd, which was agreed upon late last year. According to Reuters estimates released on Friday, OPEC has delivered 0.16 mln bpd of the 0.3 mln bpd previously planned for in January amid a drop in Nigerian supply, with Iraqi production up 0.05 mln bpd to 3.88 mln bpd despite earlier this year pledging to cut output to 3.65 mln bpd to compensate for last year's overproduction. This morning, Brent is on track to test a $55.5/bbl resistance level, with upside today likely to be limited to the $56.2/bbl mark, in our view. Meanwhile, support is at $54.6/bbl (today's intraday low so far), which we do not expect to be retested, especially if the DM manufacturing PMI data remain strong, as we expect.The main event for oil investors this week will be the OPEC+ JMMC meeting to review the progress and compliance with the output cutbacks. Despite OPEC+ targets having already been set for February and March and no changes mentioned in recent days, remarks from top Saudi and Russian energy officials will still be scrutinized for signs they're open to easing cuts going into the spring. We also highlight Wednesday's EIA release of its Annual Energy Outlook 2021, with long-term US oil production projections to be of particular interest.SPECTACULAR REDDIT-INSPIRED RALLY IN SILVER IN FOCUS, GOLD PRICES LOWERGold demonstrated a mixed dynamic on Friday, starting the day hovering above $1,840/oz, while silver was trading near $26.2/oz. In early European trading, both metals began to rally, with gold surging to $1,875/oz (its January high) and silver rallying above $27.6/oz. Both were boosted by news that broker Robinhood had softened its policy for retail investors. During the US session, gold surrendered all of its earlier gains, sliding toward $1,840/oz, whereas silver edged only slightly lower to around $27/oz. In terms of key data on Friday, US consumer spending fell for a second straight month in December amid renewed business restrictions and a temporary expiration of government-funded benefits for millions of unemployed Americans. The report from the Commerce Department also showed inflation steadily rising last month. The market expects inflation to surge this year, a view backed by other data showing a solid increase in labor costs in 4Q20.This morning, gold is trending higher, trading near $1,865/oz, while silver is rallying yet again, having already broken the $29/oz mark. Note that comments on silver began appearing on the Reddit forum r/wallstreetbets last week. People started egging each other on to pile into the iShares Silver Trust, the metal's largest exchange-traded product, saying banks have been keeping silver prices artificially low, masking an actual shortfall of supplies. The metal surged after a weekend demand frenzy. Silver's Reddit-inspired spike will remain in focus as this week gets underway. Retail sites were overwhelmed with demand for bars and coins on Sunday. Outlets including Apmex, the Walmart of precious metals products in North America, claimed to be unable to process orders until Asian markets open. This week, investors will be watching how much havoc the ranks of retail traders can wreak in the silver market, which is bigger and more liquid than recent targets. Friday's weekly CFTC data on futures and options showed that money managers have followed the trend, increasing their bullish silver bets, with net-long position at the most bullish in three weeks. Today, we expect the speculative bullish run to continue. We think gold will retest this month's high of 1,875/oz, while silver will likely break above the $30/oz mark.