Commodities Daily - February 4, 2021

> Oil climbs to new YTD high amid mixed EIA inventory report, OPEC+ sticking to market rebalancing. Today, investors are eyeing Saudi Arabia's announcement of its official crude oil selling prices to global customers for March, with the Bloomberg consensus of six refiners and traders suggesting that Aramco will reduce prices m-o-m on its Arab light crude, which could provide mild price headwinds for Brent. Also on the radar today is the Bank of England policy decision, as well as US weekly jobless claims and US 4Q20 nonfarm productivity. After climbing to the new YTD high, this morning Brent has trended lower as the global stock market rally is fading. We think it is likely to test $58.3/bbl support later today, with a break below potentially triggering losses into the $57.8-58.0/bbl range. We note that resistance is at $58.8/bbl, with a break above likely leading into a $59.1-59.3/bbl range.> Gold and silver remain under pressure amid dollar strength; Biden's speech eyed. Both metals are under pressure as we write, with gold hovering above $1,820/oz and sliver above $26.5/oz as the dollar continues to strengthen globally. US President Joe Biden is scheduled to lay out his foreign policy goals in a speech today, an event that was postponed from Monday. Data releases include weekly US jobless claims, which are likely to be upbeat and positive for gold and silver. The BoE monetary policy decision and eurozone retail sales are also scheduled. We think gold remains exposed to support at $1,810/oz, though we do not expect that level to be tested today and expect bullion to consolidate around the $1,820/oz mark.OIL CLIMBS TO NEW YTD HIGH AMID MIXED EIA INVENTORY REPORT, OPEC+ STICKING TO MARKET REBALANCINGAhead of the OPEC+ JMMC meeting results, Brent inched upward yesterday by $0.50/bbl to $58.00/bbl. The draft communique from the meeting stressed "the importance of accelerating market rebalancing without delay." A post-meeting statement also noted that "while economic prospects and oil demand should remain uncertain in the coming months, the gradual rollout of vaccines around the world is a positive factor for the rest of the year, boosting the global economy and oil demand." This rather resolute approach to rebalancing, despite the recent oil price rally (the committee also urged members to remain "vigilant and flexible"), has buoyed markets and Brent went on to rally yesterday toward $59/bbl (it fell just short). Note that OPEC+ made no mention of changing policy, with the online meeting unusually smooth and brief (it last just over an hour) for an OPEC+ gathering. The next meeting will take place on March 4 and be much more important, as there the supply quotas for at least 2Q21 or even the rest of the year should be worked out. We expect a gradual 0.5 mln bpd m-o-m OPEC+ production increase starting from April as the most likely outcome given the current market conditions.The EIA weekly update on US inventories came shortly after the OPEC+ communique was released. It showed a moderate 0.99 mln bbl decrease in US crude stocks to 475.66 mln bbl last week amid a 0.13 mln bpd increase in exports to 3.48 mln bpd. A strong 1.44 mln bpd increase in imports to 6.50 mln bpd and a 0.08 mln bpd decrease in refinery inputs to 14.64 mln bpd proved insufficient to offset the headline draw. Meanwhile, US crude oil production remained flat at 10.90 mln bpd. We note that yesterday's EIA annual energy outlook release put US crude oil production at a new record in 2023, with it expected to peak at 13.88 mln bpd in 2034. The gasoline and distillate data were on the bearish side: gasoline stocks were up a strong 4.47 mln bbl at 252.20 mln bbl, while distillate stocks were down a tiny 0.009 mln bbl at 162.84 mln bbl. Gasoline demand ticked up but is still at its weakest level for this time of the year since 1998. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) rose 2.92 mln bbl amid builds in jet fuel and fuel oil outweighing draws in propane stocks and the "other oils" category. As the update failed to extend last week's bullish numbers, Brent ticked lower and eventually settled at $58.46/bbl, fixing $1.00/bbl above the previous settlement. Today, investors are eyeing Saudi Arabia's announcement of its official crude oil selling prices to global customers for March. The Bloomberg consensus of six refiners and traders suggests that Aramco will reduce prices m-o-m on its Arab light crude, which could provide mild headwinds for Brent. Also on the radar today is the Bank of England policy decision, as well as US weekly jobless claims and US 4Q20 nonfarm productivity. After climbing to the new YTD high, this morning Brent has trended lower as the global stock market rally is fading. We think it is likely to test $58.3/bbl support later today, with a break below potentially triggering losses into the $57.8-58.0/bbl range. We note that resistance is at $58.8/bbl, with a break above likely leading to a $59.1-59.3/bbl range.GOLD AND SILVER REMAIN UNDER PRESSURE AMID DOLLAR STRENGTH; BIDEN'S SPEECH EYEDGold was trading around the $1,840/oz mark yesterday but drifted lower into the close and ended at $1,830/oz. Silver consolidated below $27/oz. Dollar strengthening remains the main driver for precious metals. EUR/USD hit a two-month low yesterday and is barely holding above 1.2. US 10y Treasury yields continue to rise, hitting a three-week high of 1.15%, which is also providing gold with a headwind. Yesterday's data releases were mixed. The ADP report indicated that US companies added 174k jobs last month, which exceeded the consensus estimate and builds a case for an upbeat US nonfarm payrolls report due on Friday, which could provide support for gold and silver. The US services PMI reached 58.7 in January (up from a revised 57.7 in December), while the eurozone services sector remained deep in contraction territory (thought the PMI was slightly up m-o-m at 45.4 in January). This disparity in economic performance is one factor weighing on EUR/USD and thus gold and silver prices, while the US leading Europe in terms of vaccination rates is another. US President Biden yesterday said he would consider tighter limits on who would qualify for $1,400 checks, which could cause some investor concern over the fiscal help necessary in the short term to carry the economy through the pandemic. It appears that the rush to buy silver has ebbed since CME Group raised margins earlier this week. Both metals are under pressure as we write, with gold hovering above $1,820/oz and sliver above $26.5/oz as the dollar continues to strengthen globally. Biden is scheduled to lay out his foreign policy goals in a speech today, an event that was postponed from Monday. Data releases include weekly US jobless claims, which are likely to be upbeat and positive for gold and silver. The BoE monetary policy decision and eurozone retail sales are also scheduled. We think gold remains exposed to support at $1,810/oz, though we do not expect that level to be tested today and expect bullion to consolidate around the $1,820/oz mark.