Commodities Daily - February 24, 2021

> Oil inches lower following API report of crude oil stock build; EIA report eyed. Brent has slid below $65/bbl as we write following the API report overnight that showed a 1 mln bbl increase in US crude stocks amid last week's US energy crisis. The massive disruptions to refining and crude oil production caused by the extreme cold weather will significantly distort today's EIA inventory report, with the consensus for this week expecting a sharp draw in crude stocks. We expect Brent to test support at $64.3/bbl today if the EIA inventory report comes in less bullish than the market has foreseen, though a break below and a drop into the $63.4-63.9/bbl range is unlikely, in our view. Under an upbeat scenario, Brent could rebound into the $66.5-67.0/bbl range.> Gold rises as investors weigh fresh comments from Jerome Powell. Today the market will be monitoring Fed Chair Jerome Powell's testimony before the financial services committee in the US House of Representatives as well as US new home sales data. We expect Powell to remain dovish, which could help gold to retest the $1,815/oz resistance level. A break above could pave the way to $1,840/oz. A correction below $1,795/oz could signal the continuation of the downtrend toward $1,761/oz, though we think this is unlikely.OIL INCHES LOWER FOLLOWING API REPORT OF CRUDE OIL STOCK BUILD; EIA REPORT EYEDBrent rallied from $63/bbl on Monday to as high as $66.8/bbl early yesterday, with a number of major investment banks raising their oil price forecasts and traders predicting further market tightening. The main catalyst behind this was the loss of oil output and refinery production after the big freeze in the US with much of the world emerging from lockdowns. The loss of millions of barrels of crude and products output is ultimately bullish for Brent. The expected 0.5 mln bpd increase in OPEC+ production quotas for April and the end to Saudi Arabia's voluntary cut (by 1 mln bpd in February and March) appears set to push OPEC output above 26 mln bpd in April, but this is widely expected to be easily absorbed by the market. Should prices and demand remain on a positive trajectory, we would anticipate two further 0.5 mln bpd quota increases, in May and June, to reach the "phase three" level (where the total OPEC+ cut will be reduced to 5.8 mln bpd), which will last until March 2022, leaving space for the return of Iranian supplies in 2H21. Meanwhile, Iran, which recently signaled plans to scale back cooperation with the International Atomic Energy Agency, this week reached a deal with the nuclear watchdog for inspections over the next three months. Yesterday, oil eased later in the day, with Brent eventually settling at $65.37/bbl, up $0.13/bbl on the day.Overnight, the API reported a 1 mln bbl build in US crude stocks last week to 469 mln bbl. This came amid a massive 2.2 mln bpd decrease in refinery inputs and despite a 0.52 mln bpd decrease in imports. Crude oil stocks at Cushing were up by 2.8 mln bbl. The refined product data was mixed, showing a small 0.07 mln bbl increase in gasoline stocks and a strong 4.5 mln bbl draw in distillate stocks. The EIA weekly inventory report is due today at 18:30 Moscow time. The Bloomberg consensus is for a 6.5 mln bbl crude stock draw, a 3.5 mln bbl decrease in gasoline stocks and a 4 mln bbl drop in distillate stocks.Brent has slid below $65/bbl as we write following the overnight API report, which showed the first gain in US crude stockpiles in five weeks following the recent cold blast. US drillers have already restored about 80% of output in parts of Texas after the big freeze, although refiners are finding a return to normal more tricky. The massive disruptions to refining and crude oil production caused by the extreme cold weather will significantly distort today's EIA inventory report, with the consensus expecting a sharp draw in crude stocks. We expect Brent to test support at $64.3/bbl today if the EIA inventory report comes in less bullish than the market has foreseen, though a break below and a drop into the $63.4-63.9/bbl range is unlikely, in our view. Under an upbeat scenario, Brent could rebound into the $66.5-67.0/bbl range.GOLD RISES AS INVESTORS WEIGH FRESH COMMENTS FROM JEROME POWELLOn Friday, ahead of the Russian public holidays, gold dropped to as low as $1,760/oz before paring back the losses, with bullion seemingly ripe for buying interest at YTD lows. Yesterday morning, bullion was trading at $1,815/oz but lost steam and consolidated around $1,810/oz. This move was despite 10y US Treasuries yields rising to 1.34% and real yields climbing to -0.79%. The decoupling came amid a rise in EUR/USD to 1.215 from sub 1.210 levels at the start of the day on Friday. This move was triggered by fairly upbeat IHS Markit preliminary PMIs for February, which pointed to early signs of economic recovery. Monday's highlight was a speech by ECB President Christine Lagarde, who said the central bank is "closely monitoring the evolution of long-term nominal bond yields." This caused a correction in long-dated European bond yields, which boosted gold.Yesterday's high of $1,815/oz was supported by muted eurozone CPI data for January, which came in at 1.4% y-o-y, the same as in December. The subdued inflation figure provided further support for EUR/USD. During yesterday's US trading session, gold was mainly driven by Fed Chair Jerome Powell, who was giving testimony before the US Senate banking, housing, and urban affairs committee. Powell noted that "the economy is a long way from our employment and inflation goals," meaning that easy monetary policy is set to stay in place. Powell added that rising Treasury yields are one of many financial conditions the Fed is watching, and yields are rising on expectations of an improving economy. This dovish stance supported gold prices this morning above $1,810/oz. Today the market will be monitoring Powell's testimony before the financial services committee in the US House of Representatives, as well as US new home sales data. We expect Powell to remain dovish, which could help gold to retest the $1,815/oz resistance level. A break above could pave the way to $1,840/oz. A correction below $1,795/oz could signal the continuation of the downtrend toward $1,761/oz, though we think this is unlikely.