Commodities Daily - February 5, 2020

> Oil keeps edging lower amid bearish API report as investors brace for deeper OPEC+ cuts; EIA data eyed. Investors are currently positioning themselves for a slew of data today that features January service and composite PMIs from around the globe, eurozone retail sales, and US releases including the January ADP employment report (16:15 Moscow time) and ISM nonmanufacturing index (18:00) and, of course, the EIA inventory report (18:30). In our view, the two US macro releases are likely to beat the consensus, supporting Brent ahead of the EIA data, which we expect to be downbeat.> Gold plunges 1.5% amid burgeoning risk appetite. Gold dropped throughout yesterday's session, and the opening in New York intensified the selloff. It broke below the $1,550/oz mark, having lost $21/oz. Today, the Caixin composite and services PMIs for China came in below consensus and supported a recovery in safe haven assets. Gold is trading at around $1,560/oz as we write. Later today, the January composite and services PMIs for the and the UK will be released, while in the US, the ADP labor market report is due, as well as trade balance and mortgage application data. Strong US numbers could push gold back to $1,550/oz, in our view.OIL KEEPS EDGING LOWER AMID BEARISH API REPORT AS INVESTORS BRACE FOR DEEPER OPEC+ CUTS; EIA DATA EYEDFor most of the day yesterday, front-month Brent traded around $55/bbl, but late in the US session, it began to slide despite strong upward momentum in equities, eventually settling at $53.96/bbl, fixing $0.49/bbl below the previous settlement. Yesterday's rally in equites and strong correction in safe-havens suggest that markets expect that China will soon be able to contain the virus. However, oil investors are not yet joining in on the risk-on trading, as they are waiting for clarity from OPEC+. If the OPEC+ technical committee advises the group to extend the deal and make deeper cuts, this would likely stabilize prices and cause the Brent futures curve to return to backwardation. We therefore think it would be wise to consider going long on the Brent December 2020-December 2021 spread, which is currently at $0.2/bbl, down from $4/bbl in early January.Overnight, the API reported that US crude stocks rose 4.2 mln bbl to 432.9 mln bbl last week (the EIA's latest report estimated them at 431.6 mln bbl). The buildup came amid a 0.46 mln bpd increase in imports and a 0.13 mln bpd decrease in refinery runs. The refined product data was slightly on the bearish side, showing a 2 mln bbl build in gasoline stocks and a 1.8 mln bbl decrease in distillate inventories. The buildup in crude weighed on Brent, which slid to $54/bbl overnight, though it has since recovered to around $54.5/bbl. Investors are currently positioning themselves for a slew of data today that features January service and composite PMIs from around the globe, eurozone retail sales, and US releases including the January ADP employment report (16:15 Moscow time) and ISM nonmanufacturing index (18:00) and, of course, the EIA inventory report (18:30). In our view, the two US macro releases are likely to beat the consensus, pushing Brent toward $55/bbl ahead of the EIA data, which we expect to be downbeat.The Bloomberg consensus expects a 3 mln bbl build in EIA crude stocks, a 1.8 mln bbl increase in gasoline stocks and a 0.2 mln bbl decrease in distillate stocks. We expect a stronger oil inventory build amid a seasonal drop in refinery runs, which were down a whopping 1 mln bpd w-o-w in the previous report. The lower refinery uptake, which is due to seasonal maintenance, should mean lower gasoline production and perhaps a draw in gasoline stocks, although we would expect any draw to be modest given seasonally subdued demand. Moreover, we doubt any positive surprises in the refined products category would be sufficient to offset the likely buildup in crude stocks. Thus, we think the EIA report is likely to weigh on Brent later today, pushing it to recent support at $54/bbl. The downside should be limited to the next technical support level of $52.7/bbl. However, we note that Brent could quickly recover from any setback and return to $54-55/bbl given the expectations of deeper OPEC+ production LD PLUNGES 1.5% AMID BURGEONING RISK APPETITEOptimism reigned yesterday, which put gold under pressure. The opening in New York intensified the selloff, and it broke below the $1,550/oz mark, having lost $21/oz. US durable goods orders for December came in fairly strong and exceeded the consensus (1.8% versus 1.2%). The New York business conditions index climbed from 39.1 to 45.8, which supported investor confidence.This morning, investors turned more cautious. The Caixin composite PMI for China (down to 51.9 from 52.6) and the services PMI (51.8 versus the consensus forecast of 52) came in worse than expected and supported a recovery in safe-haven demand. Gold is trading at around $1,560/oz as we write. Later today, the January composite and services PMIs for the eurozone and the UK will be released, while in the US, the ADP labor market report is due, as well as trade balance and mortgage application data. Strong US numbers could push gold back to $1,550/oz, in our