Commodities Daily - February 3, 2021

> Oil trends higher ahead of JMMC meeting, EIA weekly inventory update. We expect a mixed EIA report, with a slight crude stock build likely after last week's massive draw amid likely builds in the refined product categories. Also on today's agenda is the JMMC meeting. Comments will be scrutinized for signs that OPEC+ is open to easing production cuts in the spring. This morning, Brent is hovering below resistance at $58/bbl, with a break above likely leading to a gain into the $58.3-58.8/bbl range.> Gold and silver slide as dollar strengthens ahead of wave of data releases. Today, investors will eye the US ADP employment report ahead of Friday's nonfarm payrolls data. Eurozone CPI and global services PMIs are also on the agenda today. We expect gold to test support at $1,832/oz today, with a break below paving the way to $1,810/oz, with the ADP jobs report for January likely to show a stall in hiring. An unlikely surge above $1,853/oz would open the way toward $1,875/oz.OIL TRENDS HIGHER AHEAD OF JMMC MEETING, EIA WEEKLY INVENTORY UPDATEAfter hovering below the $57/bbl mark early yesterday, front-month Brent began to rally toward $58/bbl, registering a new YTD high and still mirroring major stock market indexes. Among the background drivers was growing confidence that the US will soon approve a new fiscal stimulus package, likely the $1.9 trln package sought by President Joe Biden. Meanwhile, a key highlight yesterday was the OPEC+ technical panel's forecast that OECD oil inventories will decline below the five-year average level in June, implying that OPEC+ has been successful in rebalancing the market after inventories spiked to all-time highs in 2Q20. Also note that the Joint Technical Committee estimates that global oil stockpiles will diminish at an average rate of 1.1 mln bpd in 2021. Brent eventually settled at $57.46/bbl, fixing $1.11/bbl above the previous settlement. Overnight, the API reported a 4.3 mln bbl draw in US crude stocks to 477.6 mln bbl last week amid a 0.07 mln bpd increase in refinery runs and despite a 0.06 mln bpd rise in imports. Cushing crude stocks fell 1.9 mln bbl. The refined product data showed a 0.24 mln bbl draw in gasoline stocks and 1.4 mln bbl decrease in distillate stocks. The EIA data is due today at 18:30 Moscow time. The consensus is for a 2.3 mln bbl crude stock draw, 1.5 mln bbl rise in gasoline stocks and 0.5 mln bbl draw in distillate stocks. We expect a mixed report that will possibly even show a slight crude stock build, while we are skeptical that the EIA will confirm the gasoline and distillate stock draws reported by the API. Note that the lack of bullish highlights in the report following a massive 9.9 mln bbl crude oil stock draw reported last week could trigger some profit taking following oil's very strong $3.3/bbl price rally in the first couple of days of February.Today's main event is the OPEC+ JMMC meeting. The current oil price rally and strengthening backwardation in Brent and WTI are a strong vote of confidence for OPEC+, which is pledging to defend the market against the pandemic's threat to demand. While output levels are locked in for the next two months and thus the committee is unlikely to recommend new policies, remarks from the Saudi and Russian energy ministers will still be scrutinized for signs they're open to easing cuts in the spring. Meanwhile, Iraq could be criticized for failing to deliver promised supply reductions. Note that OPEC+ is scheduled to bring back a total of 1.9 mln bpd this year (so far it agreed to a two-month pause after the first 0.5 mln bpd installment in January, while Saudi Arabia announced an extra 1 mln bpd cutback on its own in February-March), and we think the recent price rally and upbeat demand growth expectations starting from mid-2Q21 could tilt the group toward a supply boost starting in April. Such plans could slip in today's post-meeting commentary, which would provide moderate headwinds to prices.This morning, Brent is hovering below resistance at $58/bbl, with a break above likely leading to a gain into the $58.3-58.8/bbl range. In our view, however, prices are most likely to consolidate within the $57.5-58.0/bbl range amid profit taking, a likely mixed EIA report and OPEC+ ministers hinting at 2Q21 production hikes. A break below this level would likely cause a correction into the $57.0-57.2/bbl range. Investors will also eye today EIA's 2021 Annual Energy Outlook, US ADP employment data and global services PMIs.GOLD AND SILVER SLIDE AS DOLLAR STRENGTHENS AHEAD OF WAVE OF DATA RELEASESGold was trading near $1,860/oz early yesterday but slipped to $1,835/oz and touched a two-week low of $1,830/oz. Silver lost $2/oz yesterday and closed at $26.32/oz. Yesterday's decline suggests that the recent social media-driven rally in silver has started to cool, with recent dollar strengthening (EUR/USD slid from 1.209 to 1.201 yesterday) taking its toll. All of the major economies have published their 4Q20 data, and it came as no surprise that eurozone GDP contracted by 0.7% Q-o-Q and 5.1% y-o-y, close to consensus estimates. With strict containment measures still necessary to control the virus and vaccination programs progressing slowly, we expect activity across the region to remain very subdued for some time. The US is among the leaders in terms of vaccine rollout among developed countries, and this factor is leading investors to bet on the US economy recovering from the coronavirus shock faster than Europe.This morning, both metals have pared back some of yesterday's losses. Gold is attempting to hold above $1,840/oz, and silver is on its way toward $27/oz. Today, investors will eye the US ADP employment report ahead of Friday's nonfarm payroll data. Eurozone CPI and global services PMIs are also on the agenda. Renewed hopes that US President Biden's proposed $1.9 trln stimulus plan will be approved by the Senate is providing tailwinds for gold and silver. We would caution that such a vast stimulus injection could force investors (in a similar way to last month) to begin pricing in the Fed scaling back its QE program, which would lift 10y US Treasury yields and in turn weigh on gold. We expect gold to test support at $1,832/oz today, with a break below paving the way to $1,810/oz, with the ADP jobs report for January likely to show a stall in hiring. A surge above $1,853/oz, albeit unlikely, would open the way toward $1,875/oz.