Commodities Daily - January 11, 2022

> Oil remains under pressure ahead of monthly EIA report, US inventory data. This morning, Brent is hovering above $81/bbl, supported by signs that Omicron may be peaking in New York and the moderate recovery in the US stock market late in yesterday's session. Today, investors will eye the monthly EIA oil market report, where the agency is likely to confirm its 2022 stock build expectations. We therefore think Brent is likely to retest $80.5/bbl. However, the weekly API data on US oil and refined product inventories due overnight could provide some support for oil prices later on.> Gold nudges higher as US 10y Treasury yield eases. Gold climbed from $1,795/oz to $1,800/oz yesterday, while the 10y Treasury yield edged down from 1.76% to 1.75%. Gold is trading near $1,805/oz as we write. Today, Fed Chair Jerome Powell will testify before the US Congress and the NFIB small business optimism index for December is scheduled for release. We expect bullion to test support at $1,800/oz today.> Base metals mixed as investors weigh Fed rhetoric; thermal coal prices set to rise. Base metals traded mixed yesterday as investors assessed Fed comments. More are to be delivered today, driving sentiment. Thermal coal prices are rising amid Covid-related factors and look to have further upside in 1Q22.OIL REMAINS UNDER PRESSURE AHEAD OF MONTHLY EIA REPORT, US INVENTORY DATAYesterday, after peaking at $82.3/bbl midday, Brent began to slide, reaching as low as $80.5/bbl. Headwinds continued to come from the US stock market, which has faced pressure from the growing prospects of higher interest rates amid still-elevated inflation (the December US CPI data is due tomorrow). The restoration of oil production in both Libya and Kazakhstan has also weighed on oil prices. Front-month Brent eventually settled at $80.87/bbl yesterday, fixing $0.88/bbl below the previous settlement. Libyan supply looks set to further rebound, as a breakthrough has materialized in the negotiations between the National Oil Company and Petroleum Facilities Guards units in Zintan and Sharara, which could potentially bring an end to the three-week blockade that has shut in close to 0.4 mln bpd of oil supply. Pipeline maintenance in eastern Libya, which briefly reduced output by another 0.2 mln bpd, has also concluded ahead of schedule. This all means that Libyan production should return to 1.1-1.2 mln bpd in short order. Brent calendar spreads will likely ease in response, especially since Kazakh production is also recovering. However, for now we only forecast small crude stock builds in 1Q22 (0.2 mln bpd, versus the 2010-19 average of 0.7 mln bpd), which will set the market up for a strong recovery in Brent calendar spreads this summer. We note that there are risks to this base-case scenario, as there is a possibility of disruptions at terminals in eastern Libya near the end of the month. If payments from Tripoli to the Libyan National Army do not resume in the coming weeks, militias may close the terminals, shutting down 0.6-0.7 mln bpd of capacity.This morning, Brent is hovering above $81/bbl, supported by signs that Omicron may be peaking in New York and the moderate recovery in the US stock market late in yesterday's session. Today, investors will eye the monthly EIA oil market report, where the agency is likely to confirm its 2022 stock build expectations. We therefore think Brent is likely to retest $80.5/bbl. The EIA has so far been projecting that global oil stocks will rise by 0.5 mln bpd in 2022, as it expects increases in production to outpace slowing growth in global demand, particularly in light of the renewed concerns over Covid-19 variants. However, the weekly API data on US oil and refined product inventories due overnight could provide some support for oil prices later LD NUDGES HIGHER AS US 10Y TREASURY YIELD EASESGold rose from $1,795/oz to $1,800/oz yesterday, while the US 10y Treasury yield edged down from 1.76% to 1.75%. EUR/USD slid from 1.136 to 1.133. Yesterday's US wholesale inventories for November disappointed and showed that the economic recovery in uneven, supporting bullion. Fed Chair Jerome Powell said the bank will endeavor to prevent elevated inflation from becoming persistent. He also said the post-pandemic economy may look different than in the previous cycle. This suggests that Powell's comments at today's hearing in the US Congress are likely to be hawkish. Meanwhile, Richmond Fed President Thomas Barkin said it would be appropriate to introduce the first rate hike as early as March.Gold is trading near $1,805/oz as we write. Later today, Powell will testify before the US Congress, and the NFIB small business optimism index for December is due for release. We expect Powell to signal an earlier than expected first rate hike, as inflation appears set to remains elevated in 2022. The market appears to be pricing in four 0.25% rate hikes in 2022, which is creating a headwind for gold. We anticipate hawkish comments, in line with recent statements by other Fed officials. This should boost the 10y Treasury yield and increase the opportunity cost for gold investors. We expect bullion to test support at $1,800/oz today, which could pave the way for it to target the next support level at $1,785/ SE METALS MIXED AS INVESTORS WEIGH FED RHETORIC; THERMAL COAL PRICES SET TO RISEBase metals closed mixed yesterday. The 3m LME contract for copper was down 0.87% (-$83/tonne from the previous day's close) at $9,564/tonne, aluminum added 0.58% (+$17/tonne) to $2,932/tonne and nickel inched higher 0.31% (+$65/tonne) to $20,799/tonne, while zinc dropped 1.59% (-$56/tonne) to $3,477/tonne.The mixed dynamics occurred as investors assessed comments from Fed Chairman Jerome Powell on inflation and the action to be taken to tame it. The latest US labor market data suggests the Fed is likely to take an even more hawkish approach, with the current market consensus gradually climbing to four rate hikes this year. The Fed's rhetoric today will drive the markets, while upcoming US and Chinese inflation prints and Chinese trade data is likely to result in elevated volatility in the global markets this week. Meanwhile, the LME, where global prices for bellwether commodities like copper and aluminum are set, is facing a shutdown due to a power outage today, leading to subdued trading today and possibly decreased trading volumes in the days to come.Thermal coal prices continue to be driven mostly by the situation in the gas market, which itself is still far from stable. Another factor is the Omicron variant spread in China and most importantly whether the authorities will continue to stick to their zero-Covid approach. On the one hand, there is evidence that the less deadly variant might not need to be treated in a way that might risk the country's (and the global) economic recovery, especially when the country is starting to pump stimulus into the economy. On the other hand, the approach has proved successful and might be necessary ahead of the Lunar New Year and the Olympics. Meanwhile, coal prices are being supported by limited mining and transportation of coal to plants, with a temporary export ban in Indonesia adding pressure to the supply-demand balance. There might be more upside for thermal coal prices in 1Q22 - potentially lower temperatures in the Northern Hemisphere and the power crisis could boost demand and Chinese coal supply shortage, which altogether will result in a global