Commodities Daily - February 19, 2021

> Oil slides along with stock markets despite upbeat EIA report, as US says it is ready to talk with Iran. This morning, Brent slid toward $62/bbl, pressured by the Iran news as well as reports that wells are slowly restarting in Texas. Meanwhile, demand from refineries is expected to remain subdued, as it may be a while before some of them are able to get back up and running. Today, investors will eye preliminary February IHS Markit PMIs from DMs and the weekly Baker Hughes rig count update. Though Brent is currently paring back earlier losses and pushing toward the $63.5/bbl resistance level, we think it is likely to come under pressure again from the factors outlined above and consolidate between $63.5/bbl and the upper end of the $61.7-62.2/bbl range.> Gold prices keep falling as 10y US Treasury real yields rise; DM PMIs eyed. Throughout today investors will be watching out for preliminary February PMIs from developed markets, which will likely be upbeat and reflect the improving situation with the virus over the past few weeks. Positive PMI prints (especially for the eurozone, which come out early in the day) may support gold toward $1,785/oz, in our view. Meanwhile, a break below the $1,761/oz support level today looks unlikely, but if that does happen it could open a path down to support at $1,726/oz.OIL SLIDES ALONG WITH STOCK MARKETS DESPITE UPBEAT EIA REPORT, AS US SAYS IT IS READY TO TALK WITH IRANAfter peaking near $65.5/bbl early yesterday, front-month Brent began to slide along with global stocks, reaching $63.9/bbl ahead of the EIA inventory update, which showed a strong 7.26 mln bbl drop in US crude stockpiles to 461.76 mln bbl last week amid a solid 1.25 mln bpd rise in exports to 3.86 mln bpd, a 0.2 mln bpd drop in US oil production to 10.8 mln bpd and a tiny 0.03 mln bpd increase in refinery inputs to 14.82 mln bpd. A small 0.04 mln bpd increase in imports to 5.9 mln bpd proved insufficient to offset the crude stock draw. Crude oil stocks are at the lowest levels since last March, before the pandemic began to really weigh on demand. Still, it is important to keep in mind that next week's update should reflect the plunge in refinery throughput due to the energy crisis in Texas.The gasoline and distillate data was also bullish. Gasoline stocks were up yet again, though this time by just 0.67 mln bbl to 257.1 mln bbl, while distillate stocks fell 3.42 mln bbl to 157.7 mln bbl. US gasoline demand rose last week and exceeded 8 mln bpd for the first time since mid-January, although it is likely to fall in the next update, which will cover the recent events in Texas. Diesel demand reached the highest since November at nearly 4.5 mln bpd, still driven by the trucking industry and home delivery. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) fell by a very strong 15 mln bbl amid strong draws in propane stocks and "other oils."The rather bullish report pushed Brent to $64.6/bbl, although only briefly, as the developments in the US since Friday, the end of the reporting period, returned to the fore. US oil wells are slowly beginning to restart in Texas, which is weighing on prices, while demand from refineries is expected to remain subdued, as it may take some time to get them back to full capacity. Today, Bloomberg reported that it may take several weeks or more for four of the biggest refineries in Texas to resume operations. This suggests there is potential for a crude supply surplus and prolonged fuel shortages that could spread across the US. Meanwhile, global stock markets saw investors broadly taking profits yesterday amid continued media debate over the reflation trade. Brent eventually settled at $63.93/bbl, fixing $0.41/bbl below the previous settlement. However, the big story yesterday was that the White House is willing to talk with Iran about returning to the 2015 nuclear agreement that Washington abandoned nearly three years ago. US Secretary of State Antony Blinken said that the US would be open to rejoining the accord if Tehran returns to full compliance with the deal. However, Iranian Foreign Minister Mohammad Javad Zarif, who has previously signaled that he is willing to negotiate, said Washington should make the first move. If the US cancels the sanctions on Iranian oil in 2H21, around 2 mln bpd of supply could swiftly be reintroduced to the market.Today, investors will eye preliminary February IHS Markit PMIs from DMs and the weekly Baker Hughes rig count update. Though Brent is currently paring back earlier losses and pushing toward the $63.5/bbl resistance level, we think it is likely to come under pressure again from the factors outlined above and consolidate between $63.5/bbl and the upper end of the $61.7-62.2/bbl range.GOLD PRICES KEEP FALLING AS 10Y US TREASURY REAL YIELDS RISE; DM PMIS EYEDDuring the first half of the day yesterday, gold was trying to pare back some of this week's losses and was wrestling with the $1,785/oz resistance level as the recently negative EUR/USD momentum began to reverse. However, following the start of US trading it slid to $1,775/oz as 10y US Treasury yields were holding at the 1.3% level, while the 10y real yield, which strips out inflation and is seen as a pure read for the economy's growth prospects, climbed to minus 0.86% from minus 0.93% (gold investors primarily follow real yields). Rising US Treasury yields keep eroding the appeal of non-yielding gold. However, limiting the gold price correction yesterday was the U-turn in EUR/USD, which ended up gaining almost 0.5% to 1.209 yesterday. Gold began to trend lower following an unexpected rise in US initial jobless claims last week (to 861k, up from 848k the previous week). The weak labor market and tepid job growth, despite declining new Covid-19 infections, support the need for Joe Biden's $1.9 trln fiscal stimulus package. A massive increase in the money supply boosts expectations of monetary policy tightening, which in turn puts upward pressure on the US 10y yield. In early Asian trading today gold fell toward $1,760/oz. This highlights that bullion remains in bearish territory, despite its having pared back some losses and trading near $1,770/oz as we write. Throughout today investors will be watching out for preliminary February PMIs from developed markets, which will likely be upbeat and reflect the improving situation with the virus over the past few weeks (vaccination rates out of the total population are at 5% in Europe, 16.5% in the US and 24% in the UK). Positive PMI prints (especially for the eurozone, which come out early in the day) may support gold toward $1,785/oz, in our view. Meanwhile, a break below the $1,761/oz support level today looks unlikely, but if that does happen it could open a path down to support at $1,726/oz.