Commodities Daily - February 9, 2021

> Oil keeps rising as attention turns to EIA monthly report. Today, oil investors will be focused primarily on the EIA's monthly oil market report for any updates to the agency's demand and supply forecasts for this year. The API weekly report on US oil inventories will be in focus overnight. In our view, the EIA is likely to keep its demand estimates virtually unchanged but raise its US oil production projections given the recent rally. This could provide mild headwinds for oil prices. We think that Brent may target the $61.4-61.7/bbl range midday before possibly sliding back toward support at $60.6/bbl during the US session.> Gold makes U-turn and rises as 10y Treasury yields slide and EUR/USD rallies. After rising for a third session in a row yesterday, gold is battling resistance at $1,840/oz as we write. Past that mark lies the $1,853-1,875/oz range. Today, investors await a speech by ECB executive board member Philip Lane and US small-business optimism data for January. These events are unlikely to derail gold's rally, in our view. A break below the $1,828/oz support level would indicate a resumption of the downtrend toward $1,783/oz.OIL KEEPS RISING AS ATTENTION TURNS TO EIA MONTHLY REPORTAfter hovering below the $60/bbl mark early yesterday, front-month Brent began to trend higher amid tailwinds from the dollar and the stock market. It eventually settled at $60.56/bbl, fixing $1.22/bbl above the previous settlement. Heavy short-covering has driven oil prices to 13-month highs amid continued global crude stock draws (a trend in place since early 4Q20). However, pockets of softness in the physical market remain, particularly in the Mediterranean, parts of the US and West Africa. Since the physical market is far from uniformly strong, we remain cautious, although there are signs that Asian demand is gradually picking back up, with Chinese refiners quietly returning to the market as the government gets Covid-19 under control. While oil prices may continue to trend higher, there are bound to be corrections along the way, especially for calendar spreads in Brent and WTI. And even though the rally has been gaining momentum recently, technical indicators signal that oil is overbought and due for a correction, while Vitol and Gunvor, among the biggest traders in the physical market, have expressed caution about the surge in prices.Meanwhile, hedge funds are turning bullish on oil once again, pricing in a material pickup in demand in 2H21 and also assuming that the pandemic and the increased focus on the environment (driven by investors and governments) have severely damaged companies' ability to ramp up production. Expectations of a surge in oil demand driven by progress in the global vaccination effort amid the ongoing limitations on supply (largely driven by OPEC+) have helped Brent to surge nearly 60% since early November, and now more and more market participants are beginning to assume that oil prices could rally to multi-year highs this year. Speaking of supply and OPEC's discipline in particular, we highlight that the group's waterborne exports fell by 1.4 mln bpd m-o-m in January despite a 0.3 mln bpd increase in production quotas, which we believe was a very important factor behind the recent rally. Meanwhile, the pace of the output recovery in the US (the world's largest oil producer) is expected to remain slow, with production unlikely to return to the record-high average of 12.25 mln bpd from 2019 until 2023. We note that the monthly record average production level of 12.86 mln bpd was registered in November 2019, while the latest available data shows that output was down to an average of 11.124 mln bpd in November 2020.Today, oil investors will be focused primarily on the EIA's monthly oil market report for any updates to the agency's demand and supply forecasts for this year. The API weekly report on US oil inventories will be in focus overnight. In our view, the EIA is likely to keep its demand estimates virtually unchanged but raise its US oil production projections given the recent rally. This could provide mild headwinds for oil prices. We note, however, that an upward revision to US oil production estimates would most likely not be nearly enough to spoil the bullish outlook for 2H21. We think that Brent may target the $61.4-61.7/bbl range midday before possibly sliding back toward support at $60.6/bbl during the US session.GOLD MAKES U-TURN AND RISES AS 10Y TREASURY YIELDS SLIDE AND EUR/USD RALLIESGold was trading around $1,815/oz yesterday morning but climbed to $1,835/oz as EUR/USD continued to trend higher. US 10y Treasury yields began to pare back this month's gains, sliding 3 bps to 1.16%, which offered another tailwind for gold. The dollar began to weaken on Friday following disappointing US jobs data, which prompted the market to no longer view the upcoming fiscal stimulus package as an overwhelming measure that would cause the Fed to tighten its policy (which would support Treasury yields), but as a necessary impulse needed to revive the world's largest economy.Bitcoin has reached a record high after Tesla announced it would invest $1.5 bln in the cryptocurrency. This had positive reverberations for the gold market, as in its 2020 annual report, Tesla said it may invest in "certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future." ECB President Christine Lagarde yesterday predicted a pickup in the eurozone's economic recovery, which she sees as being "delayed, but not derailed." Once this recovery begins to be reflected in economic data (i.e. service or industrial sector PMIs), this will drive EUR/USD higher, providing a tailwind for gold. An initial trigger for this would be a significant improvement in the EU's mass vaccination rates, which are still very modest, with only 3.6% of the population being vaccinated. The UK has delivered more than 17 shots per 100 people, while the US is almost at 12 shots per 100 people.After rising for a third session in a row yesterday, gold is battling resistance at $1,840/oz as we write. Past that mark lies the $1,853-1,875/oz range. Today, investors await a speech by ECB executive board member Philip Lane and US small-business optimism data for January. These events are unlikely to derail gold's rally, in our view. A break below the $1,828/oz support level would indicate a resumption of the downtrend toward $1,783/oz.