Commodities Daily - February 15, 2022

> Oil remains near YTD high with Ukraine situation still in focus. Today, investors will eye the January US PPI report and then the weekly API update on US oil and refined product inventories due overnight. Meanwhile, the situation around Ukraine and the growing likelihood of an Iranian nuclear deal will keep market volatility elevated. We think Brent is likely to keep trading near $96/bbl, as a large risk premium should continue to be priced in until there is more clarity on how these two key issues will evolve.> Gold retains bullish momentum amid geopolitical tensions. Gold strengthened from $1,860/oz to $1,870/oz yesterday, while the 10y US Treasury yield rose from 1.95% to 1.98%. Gold is trading near $1,880/oz as we write. Today, the market awaits the January US PPI, and the eurozone ZEW survey and New York Empire State manufacturing index, both for February. We expect bullion to trade in a $1,860-1,890/oz range today.> Base metals mixed on geopolitics; iron ore in freefall this morning. Base metals traded mixed yesterday. Investors focused on geopolitics, the driving factor for markets recently. Aluminum, which is the most sensitive base metal to potential sanctions, led the pack yesterday. Iron ore is falling today following Beijing's efforts to rein in the market as the authorities meet with companies to "ensure smooth operations."OIL REMAINS NEAR YTD HIGH WITH UKRAINE SITUATION STILL IN FOCUSYesterday, Brent slid $2.4/bbl toward $93.3/bbl but then rebounded to a new YTD high of $96.78/bbl after Ukrainian leader Volodymyr Zelensky spooked markets with a seemingly sarcastic comment about how the rest of the world has been predicting a date for a Russian attack. In a video address to his nation late Monday, he said, "We are told that February 16 will be the day of the attack." He went on to propose that this date should be turned into a national day of unity. Although the comments were sarcastic, jittery markets sharply reacted to the headlines from major international media outlets that took Zelensky's remarks at face value. Meanwhile, Russian Foreign Minister Sergei Lavrov told Russian President Vladimir Putin that he would support continuing the diplomatic dialogue with the West. He had been asked by a reporter whether there was even a chance for an agreement to be reached on key issues given how far apart the two sides seem to be. Putin responded "alright" to the proposal in a televised exchange with Lavrov. In a separate meeting involving President Putin and Russian Defense Minister Sergei Shoigu, the latter said that some of Russia's military and naval exercises (which have been taking place in all of Russia's military districts and have involved almost all of its fleets) are coming to an end. Front-month Brent eventually settled at $96.48/bbl, fixing $2.04/bbl above the previous settlement.This morning, Brent is trading near $96/bbl, weighed down by signs of a strong supply response from the US shale industry, as well as the possibility that the Iranian nuclear deal will be revived during the ongoing talks in Vienna. Regarding the former, the EIA's monthly drilling productivity report, released yesterday, estimated that crude output at major US shale plays will rise by a strong 0.109 mln bpd m-o-m to 8.707 mln bpd in March. As for Iran, the country's foreign minister said his country is in a "hurry" to reach an agreement to restore the 2015 nuclear deal, while the EU's top diplomat, Josep Borrell, said that he strongly believed a nuclear accord with Iran was "in sight" and urged world powers to reach a compromise in order to revive the beleaguered deal. Today, investors will eye the January US PPI report and then the weekly API update on US oil and refined product inventories due overnight. Meanwhile, the situation around Ukraine and the growing likelihood of an Iranian nuclear deal will keep market volatility elevated. We think Brent is likely to keep trading near $96/bbl, as a large risk premium should continue to be priced in until there is more clarity on how these two key issues will LD RETAINS BULLISH MOMENTUM AMID GEOPOLITICAL TENSIONSGold advanced from $1,860/oz to $1,870/oz yesterday, while the 10y US Treasury yield increased from 1.95% to 1.98%. EUR/USD slid from 1.134 to 1.130. Bullion's safe haven appeal remains at the forefront given the elevated geopolitical tensions. Meanwhile, mixed comments from Fed officials failed to provide a clear signal for gold, while the unscheduled closed Fed board meeting did not bring any more hawkish developments. Geopolitics remains the most important bullish support for gold and is clearly providing considerable volatility. Yesterday, despite signs of de-escalation from some directions, comments by Ukrainian President Volodymyr Zelensky sparked another selloff on US stock markets and created a tailwind for bullion. St Louis Fed President James Bullard reiterated his view that the Fed should be more aggressive and hike by 1% by July, offering a potentially bearish sign for gold. However, Kansas-City Fed President Esther George said a systematic approach is warranted, and policymakers should be careful to not "oversteer."Gold is trading near $1,880/oz as we write. Today, the market awaits the January US PPI and the eurozone ZEW survey and New York Empire State manufacturing index, both for February. The consensus for the PPI data stands at 0.5% m-o-m, a level that would signal that inflationary pressure remains significant. Given the mixed rhetoric from Fed officials, this could create an additional tailwind for bullion. However, the inflation risks are likely to prove a temporary support for gold, similar to the geopolitical tensions. The Fed has not deployed all of its instruments to stave off inflation or to lower inflation expectations. The possibility of seven hikes raised by Fed Chair Powell at the last FOMC meeting continues to apply fundamental pressure, despite the fact that short-term supportive factors are playing a more important role for gold at present. We expect bullion to trade in a $1,860-1,890/oz range SE METALS MIXED ON GEOPOLITICS; IRON ORE IN FREEFALL THIS MORNINGBase metals traded mostly higher yesterday, with zinc an exception. The 3m LME contract for copper added 0.60% (+$59/tonne from the previous day's close) at $9,920/tonne, aluminum surged 2.49% (+$78/tonne) to $3,215/tonne, nickel added 0.52% (+$119/tonne) to settle at $23,170/tonne and zinc was lower 1.43% (-$52/tonne) to $3,575/tonne.With geopolitics continuing to drive markets, investors fear supply disruptions in the markets for fuel and some base metals. Aluminum, which is the most sensitive base metal to geopolitics and potential sanctions, led the pack yesterday. We believe the news flow over Russia and Ukraine will remain on the agenda this week and that the corresponding elevated volatility in metals markets will entail another rollercoaster week. Tomorrow's CPI and PPI data from China, as well as the PBoC's interest rate decision, will provide additional volatility.Iron ore futures in Singapore are in freefall this morning and have plunged 12%, breaking below support at the 200-day moving average. They are touching the 50-day moving average as we write. This comes as Beijing intensifies its campaign to tame the market as the National Development and Reform Commission is meeting companies today to "ensure smooth operations." With fundamentals implying the price should go lower and Chinese authorities likely to take control over pricing in the market, we believe the iron ore benchmark might extend losses in the days to come, with the next target at $116/tonne (the 100-day moving average)