Commodities Daily - February 16, 2021

> Oil prices remain elevated after recent rally amid US energy crisis. This morning, Brent is trading near yesterday's highs, as a deepening energy crisis in the US amid freezing weather has halted more than 1 mln bpd of crude production. However, it has also forced around 3 mln bpd of oil processing capacity offline, making the recent events net-bearish for the US crude market, in our view. Today, investors will eye the EIA monthly drilling productivity report, which will give us a forecast of US shale oil production in March. We note that Brent is still targeting resistance at $64.3/bbl, although to get there it will first have to overcome the $63.9/bbl barrier. In our view, however, the benchmark is more likely to consolidate just above support at $63/bbl after the recent rally, with an unlikely break below potentially causing a fall into the $62.2-62.8/bbl range.> Gold stuck near $1,820/oz amid lack of catalysts; eurozone 4Q20 GDP eyed. Gold is trading around $1,820/oz as we write. Germany's ZEW surveys and 4Q20 eurozone GDP are due today. An optimistic ZEW survey would likely provide mild support for gold, though the GDP figure could move EUR/USD and thus the gold price. The Bloomberg consensus is for a 0.7% Q-o-Q decline, which would be similar to the drop seen in 3Q20. We expect gold to retest the $1,818/oz support level today; we do not foresee it breaking the $1,830/oz resistance level today.OIL PRICES REMAIN ELEVATED AFTER RECENT RALLY AMID US ENERGY CRISISAfter rallying to almost $63.8/bbl earlyt yesterday, front-month Brent began to consolidate around $63.3/bbl, before eventually settling right at that level, fixing $0.87/bbl above the previous settlement. A deepening energy crisis in the US amid a rare deep freeze in Texas (temperatures have ranged from minus 2 to minus 22 degrees Celsius), which has not only raised demand for power but also disrupted the energy industry, remains the key driver for the oil market. The local grid operator had to impose rolling blackouts, leaving 4 mln customers without power, while the state's energy industry (Texas is by far the country's largest crude producer) has shut down more than 1 mln bpd of crude production. It now looks like the amount of US crude output that will be lost will be higher than some analysts had initially expected. Energy Aspects estimated yesterday that the average level of US production could drop around 0.25 mln bpd in February, assuming around four to five days of peak losses and a gradual return to normal. We note that a drop in US crude exports would be supportive for Brent.In our view, however, what will most likely prove to be a more important factor is that the drop in refinery runs will more than offset the production losses, making the recent events net-bearish for the US crude market. As of late yesterday, some 3.1 mln bpd of refining capacity was offline, and this capacity could be down for another two days or perhaps longer. This could be quite bearish for WTI calendar spreads, especially if the refinery shutdowns are prolonged, if equipment is damaged or if the power outages affecting Texas are not resolved quickly.We also note that the oil futures market is pricing in a rather upbeat fundamental backdrop for 2H21. The ongoing reflation trade has been driven by a handful of factors, including expectations of a vaccine-driven economic recovery, easy monetary and fiscal policy, and a weaker dollar. With this in mind, we think that unless demand surprises significantly to the upside, most of the oil price gains may come during 1H21 given how far the oil market has rallied so far this year. Prices may just flatline afterward, or they could even dip in the summer if the US eases sanctions on Iran and Iranian barrels return to the market. Of course, the later Iran returns to the market, the more muted the price impact will be, as demand will keep growing, allowing the extra supply to be absorbed more easily.This morning, Brent is trading near yesterday's highs. Investors are keeping an eye on Norway, where there is a chance that crude supply will be disrupted, as talks to avert a strike at an oil refinery have gone past deadline. The giant Johan Sverdrup field, which produces 0.5 mln bpd of oil, will need to prepare to shut down quickly in the event of a strike, while Troll, another key field, and several smaller oil and gas fields are also at risk. Today, investors will eye the EIA monthly drilling productivity report, which will give us a forecast of US shale oil production in March. Brent is still targeting resistance at $64.3/bbl, though to get there it must first overcome the $63.9/bbl barrier. In our view, however, the benchmark is more likely to consolidate just above support at $63/bbl after its recent rally, with an unlikely break below potentially causing a fall into the $62.2-62.8/bbl range.GOLD STUCK NEAR $1,820/OZ AMID LACK OF CATALYSTS; EUROZONE 4Q20 GDP EYEDGold saw steady trading yesterday, similar to Friday's session. It oscillated within a $1,817-1,827/oz range yesterday. The reduced volatility and muted trading are due to the ongoing Lunar New Year celebrations in Asia and yesterday's President's Day holiday in the US. Eurozone industrial production data released yesterday was rather downbeat, showing a 1.6% decline in December compared to 2.6% growth in November. This put slight pressure on the euro, but gold barely reacted to the release. Eurozone finance ministers yesterday agreed that support measures for the economy should remain in place for as long as needed. A further recovery in the European economy could drive EUR/USD higher (it is currently trading near 1.213) and help to spur a gold price rally in 2Q21. The vaccination process is giving some optimism. In the EU, almost 5% of the population has been vaccinated, versus almost 16% in the US. Gold is trading around $1,820/oz as we write. Germany's ZEW surveys and 4Q20 eurozone GDP are due today. An optimistic ZEW survey would likely provide mild support for gold, though the GDP figure could move EUR/USD and thus the gold price. The Bloomberg consensus is for a 0.7% Q-o-Q decline, which would be similar to the drop seen in 3Q20. We expect gold to retest the $1,818/oz support level today; we do not foresee it breaking the $1,830/oz resistance level today.