Commodities Daily - February 17, 2022

> Oil seesaws amid developments on Iran nuclear deal and Ukraine. Today, investors will keep following the headlines on the situation surrounding Ukraine, while Brent will continue to face pressure from the growing likelihood that the Iranian nuclear deal will be restored. We think the benchmark may be set to test the $91/bbl mark yet again today. > Geopolitical headlines drive gold higher. Gold advanced from $1,855/oz to $1,870/oz yesterday, while the 10y US Treasury yield stayed near 2.03%. Gold is trading near $1,875/oz as we write. Today will see the publication of the Philadelphia Fed manufacturing survey for February and US weekly initial jobless claims. We expect bullion to trade in a $1,860-1,890/oz range today.> Base metals moderately higher, with aluminum climbing on still-relevant geopolitics. Base metals traded higher yesterday, though showed relatively moderate dynamics in the absence of a geopolitical escalation. The higher aluminum prices prove that investors never relaxed over the tensions and any potential escalation could drive prices to new highs. While copper supply concerns are easing, the macro front is supportive in the short run.OIL SEESAWS AMID DEVELOPMENTS ON IRAN NUCLEAR DEAL AND UKRAINEYesterday, after gaining $3/bbl to reach $96.1/bbl, Brent tumbled $5/bbl to as low as $91.1/bbl following a tweet from Iran's top nuclear negotiator that the sides are close to an agreement that would potentially pave the way to the lifting of US sanctions on Iranian crude. However, the US State Department was more circumspect in its assessment, with spokesman Ned Price saying that the talks are in a "decisive period during which we'll be able to determine whether a mutual return to compliance with the JCPOA is in the offing or if it's not." Meanwhile, Iran appears to already be making inroads in Asia ahead of its official return to the market. In particular, officials from the state-owned National Iranian Oil Company met with South Korean refiners to discuss a potential supply agreement. Front-month Brent eventually settled at $94.81/bbl yesterday, $1.53/bbl above the previous settlement.The weekly EIA inventory report was released yesterday, though its publication was overshadowed by last night's geopolitical headlines. The report showed that crude oil inventories, which had been steadily falling, finally rebounded with a 1.12 mln bbl build last week. This was mainly due to a power outage that took several refineries offline in Texas, resulting in less demand for oil. Typically, during power outages like that, refineries have to perform emergency shutdowns, and it sometimes takes a week or more for the units to return to operation. Meanwhile, stockpiles in Cushing, Oklahoma fell by 1.9 mln bbl to the lowest level since September 2018. We note that there is little incentive to keep oil in storage given the current backwardation in the market. Another important highlight in the EIA report was that gasoline demand rose for a second straight week as US drivers emerged from the winter doldrums and workers continued to return to the office. Seasonally, however, demand remains below pre-pandemic levels.Brent rallied to as high as $94.5/bbl this morning, up $3.4/bbl from yesterday's intraday low, following a report from the Russian news agency RIA Novosti, which cited the LNR, claiming that Ukrainian forces had violated a ceasefire overnight. An emergency summit of European leaders to discuss the situation has been scheduled for today. Investors will keep following the headlines on the Ukraine situation today, while Brent will continue to face pressure from the growing likelihood that the Iranian nuclear deal will be restored. We think the benchmark may be set to test the $91/bbl mark yet again OPOLITICAL HEADLINES DRIVE GOLD HIGHERGold climbed from $1,855/oz to $1,870/oz yesterday, while the 10y US Treasury yield stayed near 2.03%. EUR/USD edged up from 1.136 to 1.138. During yesterday's US trading session, geopolitical tensions again took a turn for the worse, returning gold to elevated levels. US government officials announced that Russian troops were again building up near the border with Ukraine and not withdrawing as previous reports had suggested. Russia denied plans for an escalation. The publication of the latest FOMC meeting minutes indicated that policymakers continue to regard supply-bottlenecks and shortages as the main driver of inflation and still see plenty of risks to the recovery, including geopolitical tensions. However, in a fairly hawkish signal, the FOMC agreed to adjust monetary policy more aggressively if inflation does not come down as quickly as expected. There was no discussion on the starting date for reducing the balance sheet and no clear signs of a first rate hike of 50 bps in March. Overall, the report failed to surprise markets and was mostly perceived to be dovish rather than hawkish, which created a tailwind for gold. In addition, Minneapolis Fed President Neel Kashkari mentioned the risks of recession if the Fed decides on aggressive hikes. Meanwhile, US economic data was surprisingly optimistic, with retail sales rising 3.8% in January, almost twice the consensus level, while industrial production for the same month grew 1.4% - almost three times higher than projections. Despite the spread of Omicron, January saw a robust recovery in the US, though this creates concern among gold investors that the Fed could act more decisively to curb inflation.Gold is trading near $1,875/oz as we write. Today will see the publication of the Philadelphia Fed manufacturing survey for February, US weekly initial jobless claims, US housing starts and building permits for January, and the ECB economic bulletin. This morning's news that tensions over Ukraine remain elevated is providing support for gold and is likely to increase its safe-haven appeal, while today's macroeconomic data is expected to be mixed so is unlikely to provide a clear signal for bullion. We expect gold to trade in a $1,860-1,890/oz range SE METALS MODERATELY HIGHER, WITH ALUMINUM CLIMBING ON STILL-RELEVANT GEOPOLITICSBase metals traded mostly higher yesterday. The 3m LME contract for copper added 0.24% (+$24/tonne from the previous day's close) at $9,993/tonne, aluminum advanced 1.50% (+$48/tonne) to $3,256/tonne, nickel added 0.49% (+$114/tonne) to settle at $23,406/tonne, while zinc was almost flat at $3,584/tonne.The relatively moderate dynamics across the majority of base metals continued yesterday on what appeared to be something of an easing of tension around the Ukrainian border. However, rather than being close to a solution, things seem to have reached a temporary standstill. This is what still-elevated aluminum quotes are indicating, meaning that investors are still concerned about potential sanctions on Russia in the event of an escalation or military action. We would note, however, that the rise in aluminum quotes is above all driven by fundamentals, amid lower output in both China and elsewhere, which will continue in the short run. Nevertheless, aluminum will remain a key beneficiary of the unresolved geopolitical tensions, which will also help buoy the other base metals. This morning's reports of a further troop buildup on the Ukrainian border are likely to push base metals higher today.Copper is also likely to continue testing last year's highs above $10,000/tonne in the short term. However, it is unlikely to grow on par with aluminum since its fundamental picture seems to be improving. LME inventories were up yesterday from the lowest level since 2005 of circa 70k tonnes, while holdings in Shanghai are also higher thanks to a seasonal recovery. However, while the fundamentals hint that the immediate supply concerns are easing, on the macro front support for copper quotes is coming from what is being seen as a Fed that has still not turned sufficiently hawkish. The FOMC minutes released yesterday showed that plans for monetary tightening remain below the market's expectations. This is likely to allow copper to stay at elevated levels or even go higher in the short