Commodities Daily - February 10, 2020

> Oil slips amid OPEC+ indecision as coronavirus spreads; UN-backed talks on Libya in focus. We think this week contains further downside factors for oil amid OPEC+ indecision on deeper cuts, and we see Brent escaping from its current fragile equilibrium at $54-56/bbl into the $51.5-52.7/bbl technical corridor if it breaks below the $53.7/bbl support level.> Gold prices stable despite WHO warning about the coronavirus. US labor market data came in mixed on Friday. However, gold prices are reacting almost entirely based on developments with the coronavirus. Meanwhile, this morning, there are media reports that a case of the bird flu H5N6 has been recorded in China's Sichuan province, while WHO head Tedros Adhanom Ghebreyesus said on Twitter that we might be seeing only the "tip of the iceberg" of the coronavirus. We expect gold prices to trade around the $1,570/oz mark today. The key event for the market this week will be Fed Chairman Jerome Powell's speech to Congress on Wednesday.OIL SLIPS AMID OPEC+ INDECISION AS CORONAVIRUS SPREADS; UN-BACKED TALKS ON LIBYA IN FOCUSFront-month Brent was trading at $55-55.5/bbl on Friday morning but eased to an intraday low of $54.2/bbl ahead of the Wall Street session. After briefly spiking above $55/bbl, it slid yet again to eventually settle at $54.47/bbl, $0.46/bbl below the previous settlement. This morning, Brent briefly managed to dip below its recent range of $54-56/bbl, falling to as low as $53.6./bbl. The retreat came amid OPEC+'s indecision over cutting production more deeply in response to the coronavirus and its damaging effect on oil demand. OPEC+'s Joint Technical Committee last week recommended extending the current OPEC+ deal (involving 2.1 mln bpd of cuts) to the end of this year, coupled with an additional 0.6 mln bpd of cuts in 2Q20. The main opposition to this proposal has come from Russia, which has asked for more time but has pledged to deliver an official stance sometime this week. On Friday, Russian Energy Minister Alexander Novak predicted that global oil demand could fall by 0.15-0.2 mln bpd in 2020 (versus the consensus of a 0.3-0.5 mln bpd decline), in part because of the virus but also due to oil-price supporting factors such as reduced production in Libya, Iran and Venezuela and slowing output growth in the US (which will probably slip below 1 mln bpd y-o-y in 2020, in his opinion). The US active rig count has consolidated at around 670 units since December, versus 885 at the very start of last year.Despite Novak's rhetoric, we think Russia is likely to support the proposed additional cuts given the ongoing oil price correction, which could worsen if no decision is reached soon. Brief support for oil emerged on Friday from White House adviser Larry Kudlow, who told Bloomberg that Chinese President Xi Jinping has informed US President Donald Trump that China will still meet its phase one trade deal purchase targets despite delays linked to the coronavirus. We think that this week contains further downside factors for oil amid OPEC+ indecision on deeper cuts, and we see Brent escaping from its current fragile equilibrium at $54-56/bbl into the $51.5-52.7/bbl technical corridor if it breaks below the $53.7/bbl support level. The death toll from the outbreak in mainland China rose to 908 on Sunday, with 40,171 confirmed cases of infection. China is slowly returning to work today after extended holidays, which brings the risk of intensifying the outbreak. Meanwhile, on Sunday, Azerbaijan's oil minister told Reuters that OPEC+ could meet before March if necessary, although he saw no need at this juncture. This week will also see a number of monthly oil market outlook releases, with the EIA, OPEC and IEA likely to provide downbeat oil demand growth estimates in the wake of the coronavirus. Today, investors await the outcome of two days of UN-backed talks over the situation in Libya, where the distribution of oil revenues between the east and west of the country is under discussion. A resolution would have a very strong negative implication for oil prices, though no immediate breakthrough is LD PRICES STABLE DESPITE WHO WARNING ABOUT THE CORONAVIRUSUS labor market statistics were published on Friday. Despite the fact that US nonfarm payrolls climbed (225k versus the consensus of 165k), the overall unemployment rate edged higher, to 3.6% versus the consensus of 3.5%. Average hourly wages climbed just 0.2% (consensus: 0.3% growth). Investors took a neutral view of the mixed report. With no strong takeaway from the data, the coronavirus remains at the center of attention. This morning, there are media reports that a case of the bird flu H5N6 has been recorded in China's Sichuan province, while WHO head Tedros Adhanom Ghebreyesus said on Twitter that we might be seeing only the "tip of the iceberg" of the coronavirus. Meanwhile, the PBoC continues to provide short-term liquidity to the financial system through 7d and 14d repo ($130 bln worth of operations were carried out today). We expect gold prices to trade around the $1,570/oz mark today. The key event for the market this week will be Fed Chairman Jerome Powell's speech to Congress on