Commodities Daily - February 1, 2022

> Oil trades sideways near YTD highs ahead of OPEC+ technical committee meeting. This morning, Brent is inching higher and closing in on $89.7/bbl as investors prepare for this week's OPEC+ meeting. The group's technical committee will hold a video conference today. The agenda for today also features the January print of the ISM US manufacturing PMI, January vehicle sales data from the US, 4Q21 earnings from ExxonMobil, Bloomberg data on OPEC's production in January, and API's weekly update on US oil and refined product inventories. In our view, Brent is likely to continue consolidating near YTD highs today. The benchmark is running out of momentum and faces an array of economic and fundamental data that is likely to be mixed.> Gold advances slightly amid mixed macro data. Gold rose from $1,790/oz to $1,795/oz yesterday, while the US 10y Treasury yield edged down from 1.79% to 1.78%. Gold is trading near $1,800/oz as we write. Today, the market awaits JOLTS job openings for December and the January ISM and Markit manufacturing PMIs for the US. We expect bullion to trade in a $1,790-$1,805/oz corridor today.> Base metals mostly lower on weak Chinese data; thermal coal quotes on gradual slide. Base metals moved mostly lower yesterday as investors priced in weak Chinese PMIs, though the drop in prices was limited due to a sliding dollar. Meanwhile, thermal coal seems to be on a gradual decline as the Indonesian export ban is ending and more local miners are allowed to export the fuel.OIL TRADES SIDEWAYS NEAR YTD HIGHS AHEAD OF OPEC+ TECHNICAL COMMITTEE MEETINGYesterday, after sliding $1.8/bbl toward $88/bbl, the new front-month Brent contract for April rebounded toward $89.5/bbl. Investors were focused on the low temperatures in the US, which have been boosting demand for fuels and may halt oil and natural gas production in certain areas, potentially causing another supply shock. Speaking of US oil production, yesterday's EIA 914 oil and gas production report showed that it was up 0.24 mln bpd m-o-m to 11.75 mln bpd in November, indicating that the post-pandemic recovery in shale drilling continued. We note, however, that monthly production rose by 0.66 mln bpd in October. Apart from the concerning arctic blast in Texas, where 4.99 mln bpd of oil was produced in November (according to yesterday's EIA report), oil prices found support later in the day from data provided by the analytics company Vortexa showing that oil held on tankers fell by more than 20% last week, the latest sign that global inventories are ebbing. Front-month Brent settled at $89.26/bbl yesterday, fixing $0.74/bbl above the previous settlement.This morning, Brent is inching higher and closing in on $89.7/bbl as investors prepare for this week's OPEC+ meeting. The group's technical committee will hold a video conference today. The agenda for today also features the January print of the ISM US manufacturing PMI, January vehicle sales data from the US, 4Q21 earnings from ExxonMobil, Bloomberg data on OPEC's production in January, and API's weekly update on US oil and refined product inventories. As we noted yesterday, OPEC+ is very likely to rubber-stamp a continuation of the existing plan to add 0.4 mln bpd per month, though we note that last month the coalition added just 60% of the planned amount (just 0.24 mln bpd). Today, it will be interesting to see whether the technical committee now envisages a tighter market this year. If so, key producers could be pressured into offering assurance that they can make up for last month's production shortfall. In our view, Brent is likely to continue consolidating near YTD highs today. The benchmark is running out of momentum and faces an array of data, both economic (including what we expect to be a downbeat US manufacturing PMI reading and upbeat vehicle sales) and fundamental (we expect to see an increase in OPEC production in January and mixed API data), that is likely to be mixed LD ADVANCES SLIGHTLY AMID MIXED MACRO DATAGold rose from $1,790/oz to $1,795/oz yesterday, while the US 10y Treasury yield edged down from 1.79% to 1.78%. EUR/USD strengthened from 1.114 to 1.123. Yesterday's macroeconomic data was mixed. Eurozone GDP expanded 0.3% Q-o-Q in 4Q21, below the 0.4% consensus, while full-year growth came in at 5.2%, an almost 50-year high, which helped to strengthen the euro and supported gold. Meanwhile, on the other side of the Atlantic, the Dallas Fed manufacturing activity index fell to 2 points in January (versus the consensus of 8) and the Chicago PMI rose m-o-m in January. The mixed signals on the US economic recovery provided tailwinds for bullion yesterday. Further support came from Fed officials, who retreated slightly on their highly hawkish expectations. Kansas City Fed President Esther George said the pandemic-era policy support should be removed swiftly, which could allow the Fed to increase rates more smoothly and less aggressively. San Francisco Fed chief Mary Daly remarked that a first rate hike is appropriate in March but disagreed with the opinion that the Fed is behind the curve and asserted that the US recovery faces plenty of risks. Gold found support amid both of these comments as they calmed worries of a 50 bp rate hike in March, which had begun to rise earlier after comments from Atlanta Fed President Raphael Bostic.Gold is trading near $1,800/oz as we write. Today, the market awaits JOLTS job openings for December, the January ISM PMI for the US and Markit's manufacturing PMIs for DMs. We expect gold to consolidate around current levels today following its recent significant correction. Modest expectations for today's macro data and the slight reduction in the Fed's hawkish tone will likely create tailwinds for gold. Moreover, the market is anticipating Friday's US nonfarm payrolls report for January, which the consensus expects to decline to 150k given the record daily Covid cases registered over the past month. We expect bullion to trade in a $1,790-$1,805/oz corridor SE METALS MOSTLY LOWER ON WEAK CHINESE DATA; THERMAL COAL QUOTES ON GRADUAL SLIDEMost base metals traded lower or were flat d-o-d yesterday. The 3m LME contract for copper was unchanged at $9,506/tonne, aluminum dropped 2.00% (-$62/tonne from the previous day's close) to $3,021/tonne, nickel was flat at $22,328/tonne and zinc gave up 0.65% (-$21/tonne) to $3,589/tonne.While some metals were almost unchanged d-o-d, there was still volatility during the trading day. Metals first slid as investors weighed Chinese PMI data before a weak greenback allowed them to gain some of the losses back. Both the official and Caixin manufacturing index fell m-o-m (from 50.3 to 50.1 points and from 50.9 to 49.1 points, respectively), indicating an ongoing slowdown in the Chinese economy and weaker demand for metals in the top commodity-consuming country. Notably, commodity prices seem to have lost their correlation with PMIs amid the energy crisis, which is responsible for the current premium in energy-intensive materials; however, we believe once the energy crunch eases, base metals quotes will come back in line with PMIs. In the near term, we expect moderate action in metals markets during the Lunar New Year holidays in China.Thermal coal prices have been easing after Indonesia took steps to end its export ban. Among 600 local producers, 171 have received the green light to export, having met "domestic obligations" to sell 25% or more of mined coal to local power plants at a capped price of $70/tonne. Although other producers are still facing restrictions, we believe more and more will get export licenses as they meet these obligations or agree to pay penalties. This suggests a gradual increase in Chinese thermal coal inventories at ports. With the Lunar New Year holidays in full swing, weaker demand for the fuel and especially the end of the restocking period, we expect thermal coal stocks to build somewhat. This is likely to lead to a corresponding gradual decrease in prices, all else equal. The pandemic situation and unfavorable weather remain the key disruptors that could keep thermal coal quotes elevated for