Commodities Daily - February 10, 2022

> Oil ticks higher on upbeat EIA inventory data; OPEC monthly report and US CPI eyed. This morning, Brent is trading near $91.5/bbl, with investors today eyeing the monthly OPEC oil market report, as well as January US CPI data. In our view, OPEC will hold to its view of an inventory buildup on average this year, while elevated inflation will support bets of an aggressive Fed rate hike cycle. We think Brent will most likely continue trading around $91/bbl today, also weighed down by the prospect of an Iranian nuclear deal.> Gold continues to climb higher ahead of US CPI report. Gold rose from $1,825/oz to slightly above $1,830/oz yesterday, while the 10y US Treasury yield slipped from 1.95% to 1.94%. Gold is trading near $1,835/oz as we write. Markets await the January CPI report and weekly initial jobless claims from the US, along with updated economic forecasts from the European Commission. We expect bullion to test support at $1,825/oz today.> Base metals rally on soaring aluminum; Chinese interventions in thermal coal market. Base metals gained momentum yesterday amid the rally in the aluminum market, with aluminum futures heading toward the all-time high registered in 2008. Meanwhile, Chinese authorities are again intervening in the thermal coal market to ensure price stability, which is likely to put a lid on quotes for coal in the months to come.OIL TICKS HIGHER ON UPBEAT EIA INVENTORY DATA; OPEC MONTHLY REPORT AND US CPI EYEDYesterday, after sliding to $90/bbl at the start of the European trading session, Brent began to consolidate within the $90-91/bbl range as investors awaited the weekly EIA inventory update. US commercial stocks drew by 4.8 mln bbl to 410.4 mln bbl, while Cushing stocks drew by 2.8 mln bbl to 27.7 mln bbl, amid low imports. Meanwhile, US crude production rose 0.1 mln bpd w-o-w to 11.6 mln bpd despite the cold snap across Texas and several other states. We expect US crude stocks to rise slightly this week, by 0.2 mln bbl, as refinery closures more than offset the effect of the freeze-offs on crude oil production. Cushing stocks will keep falling until the end of February, but the prolonged outage at the Galveston Bay refinery should help them rebuild in March. Depending on the extent of the outage (and there are plenty of uncertainties about when Galveston will return), Cushing may even rise back toward 30 mln bbl.Gasoline stocks drew by 1.6 mln bbl (the first draw in seven weeks), with a 2.8 mln bbl decline on the East Coast as imports to the region decreased. Further increases in imports in the near term are unlikely, as European refinery maintenance will pick up in March and April before the summer gasoline demand season. Meanwhile, gasoline demand rose to its highest level since late December with the four-week average for demand rising for a second consecutive week, indicating that demand may have turned a corner from the winter doldrums. Refiners are expected to emerge from the heaviest phase of turnarounds in March, though several unplanned shutdowns in recent days could slow the process of ramping up. We expect gasoline stocks to draw by 2.3 mln bbl this week.Distillate stocks drew by 0.9 mln bbl despite a spike in imports. Cold drove demand higher, although peak liquids demand for heating has likely passed. We forecast distillate stocks drawing by 0.9 mln bbl this week. Total stocks including crude oil and refined products (excluding strategic petroleum reserves) fell 8 mln bbl. Front-month Brent eventually settled at $91.55/bbl, fixing $0.77/bbl above the previous settlement. This morning, Brent is trading near $91.5/bbl, with investors today eyeing the monthly OPEC oil market report as well as January US CPI data. In our view, OPEC will hold to its view of an inventory buildup on average this year, while elevated inflation will support bets of an aggressive Fed rate hike cycle. We think Brent will likely continue trading around $91/bbl, also weighed down by the prospect of an Iranian nuclear LD CONTINUES TO CLIMB HIGHER AHEAD OF US CPI REPORTGold rose from $1,825/oz to slightly above $1,830/oz yesterday, while the 10y US Treasury yield slipped from 1.95% to 1.94%. EUR/USD remained steady near 1.143. The biggest macro release from the US yesterday was wholesale inventories, which came in slightly weaker than the preliminary estimate for December, creating tailwinds for bullion. However, the main driver for gold yesterday was commentary from Fed officials. Cleveland Fed President Loretta Mester said that she expects the Fed to raise interest rates and trim its balance sheet at a faster pace than the last time around, because inflation is higher and the labor market is in a better place than in 2015. However, she eased concerns over a 50 bp rate increase in March, saying that there is no "compelling case" for such a move. Atlanta Fed President Raphael Bostic, meanwhile, was less certain about the March meeting. He said that the Fed would continue to monitor the incoming data to determine whether 25 bps or 50 bps is more appropriate. He also said that he expects three or four rate hikes this year (markets are currently pricing in five). Overall, yesterday's comments from the Fed were not all that hawkish and thus provided moderate support for bullion.During the Asian trading session today, gold was quoted slightly above $1,835/oz. Markets await the January CPI report and weekly initial jobless claims from the US, along with updated economic forecasts from the European Commission. The current gold levels seem a bit high to us given the recent rise in the real 10y US Treasury yield from -0.74% to -0.5%, which failed to prevent a modest rally in gold prices. We believe the downside risks for gold significantly exceed the scope for further gains, as the Fed may eventually be able to cool down the persisting worries over inflation. The consensus estimates for the headline readings in today's inflation report are 0.4% m-o-m and 7.2% y-o-y. The latter would be the highest reading in nearly 40 years. Higher inflation prints would most likely push the US 10y yield above 2% and boost the dollar, which would cause gold prices to sink amid growing expectations of a bigger rate hike at the March FOMC meeting. We expect bullion to test support at $1,825/oz SE METALS RALLY ON SOARING ALUMINUM; CHINESE INTERVENTIONS IN THERMAL COAL MARKET Base metals rallied yesterday. The 3m LME contract for copper was up 2.84% (+$278/tonne from the previous day's close) at $10,059/tonne, aluminum surged 2.61% (+$83/tonne) to $3,266/tonne, nickel added 2.18% (+$495/tonne) to settle at $23,187/tonne and zinc was up 1.43% (+$52/tonne) at $3,645/tonne.Aluminum continued to push toward its all-time high of $3,380/tonne registered in 2008, which sparked the rally across all base metals. Supply disruptions in the aluminum market in China and Europe have exacerbated existing tightness, driving the market into a persisting backwardation. Meanwhile, the zinc market is experiencing similar tightness due to capacity closures in Europe. Other base metals also seem to be catching up with the two recent outperformers (aluminum and zinc), having underperformed for several months. We believe there is upside for base metals in the short or even medium term as investors are likely to continue pricing in supply deficits against a backdrop of Chinese authorities continuing on the path of monetary easing, while there will be a lag between Fed tightening and a reversal in inflation.Chinese interventions in the coal and iron markets are also in the headlines. After a meeting with major Chinese coal suppliers yesterday, the National Development and Reform Commission imposed price limits on coal (CNY700 per tonne) in an effort to ensure that it remains affordable and the price stays in a "reasonable" range. The top planning agency is concerned over the current price levels, which come amid seasonally weak demand, compounded by lower consumption during the Olympics. We expect a gradual decline in coal prices as Chinese interventions coincide with the relaxation of the Indonesian export ban and more favorable weather in the months to