Commodities Daily - January 12, 2021

> Oil slides at the start of the week, attention turns to EIA monthly oil market report. Today, oil investors will primarily eye the EIA monthly oil market report for updates on this year's demand and supply forecast, with the API weekly update on US inventories to be in focus overnight. We see more downside risks to oil prices today, with Brent more likely to slide to the $54.7-55.2/bbl range than rise toward resistance at $56.2/bbl. Supporting this view are factors such as Japan and China implementing more Covid-related restrictive measures and the IEA director highlighting that a "big chunk" of US shale is profitable at current prices.> Gold prices attempt a recovery after last week's slump. Following its recent strong gains, the greenback may be set for a correction today. We would expect bullion to consolidate in the $1,861-1,869/oz technical range today. Today's global macro events include scheduled remarks from three regional Fed presidents and the release of US NFIB small business optimism. US politics will continue to generate headlines, with a House vote on the impeachment charges expected tomorrow. OIL SLIDES AT THE START OF THE WEEK, ATTENTION TURNS TO EIA MONTHLY OIL MARKET REPORTEarly yesterday, front-month Brent began to slide from $56.4/bbl toward $55.0/bbl. Investors were concentrating on the strengthening dollar, which is negative for oil, and news from China, where new lockdown measures are being introduced. This morning, however, China's National Health Commission reported a drop in the number of new Covid-19 cases in the past 24 hours as strict curbs have been implemented whenever new cases have emerged in order to prevent a national second wave. Japan, meanwhile, is planning to expand its state of emergency beyond Tokyo to stem the spread of Covid-19, which means asking residents and businesses to restrict movements and work.During European trading hours yesterday, Brent began to consolidate within the $55.0-55.5/bbl corridor and during the US session inched higher to eventually settle at $55.66/bbl, fixing $0.33/bbl below the previous settlement. An article of impeachment against President Donald Trump introduced by House Democrats and rising coronavirus cases across Europe and China were the key themes for global markets. Oil investors also took note of comments by IEA Director Fatih Birol that at current prices many shale producers will be able to increase production this year and next. He also said that in the short term "we will need shale oil from the United States to fill the gap" in the oil balance. We noted yesterday, however, that the US upstream sector will look to stabilize production rather than increase it in 2021. In our view, a sustained WTI price of $55/bbl WTI is needed for US shale activity (and thus onshore oil production) to grow.Today, oil investors will primarily eye the EIA monthly oil market report for updates on this year's demand and supply forecast, with the API weekly update on US inventories to be in focus overnight. Last month's report was on the bearish side: the EIA downgraded its previous forecast of global demand in 2021 by 0.64 mln bpd (now seen averaging 98.16 mln bpd, up from 92.4 mln bpd in 2020). It also forecast that US crude oil production would fall just 0.24 mln bpd in 2021 (versus its previous forecast of 0.29 mln bpd). We see more downside risks to oil prices today, with Brent more likely to slide to the $54.7-55.2/bbl range than rise toward resistance at $56.2/bbl.We would also highlight that backwardation in the Brent curve in November 2020 caused around 80 mln bbl of crude to be unwound from storage late last year. These barrels must now be absorbed just as short-term demand is being curtailed by renewed mobility restrictions. This is also another factor supporting the idea that the oil market is unlikely to rally further. Also note that there could even be some downside risks to Brent time spreads once the cold weather dissipates and until the destocked crude oil has been absorbed. Therefore, sustained upside in prices is likely only forthcoming starting in 2Q21 when Covid-related restrictions will likely ease.GOLD PRICES ATTEMPT A RECOVERY AFTER LAST WEEK'S SLUMPHaving fallen to as low as $1,820/oz at the start of the day yesterday, gold prices then rose and began to consolidate around the $1,840/oz mark before ending the day closer to $1,850/oz. This came despite US Treasury yields continuing to climb and the dollar continuing to strengthen, the latter gaining 0.4% versus baskets of DM and EM peers. As we noted yesterday, markets have been focusing more on the potential consequences of more US fiscal stimulus, including an earlier start to the Fed's tightening cycle, which has lifted US Treasury yields and pressured gold prices. In addition, Fed officials again stated that, if the economy is in a good place in 2H21, the issue of curtailing the QE program would be discussed and, possibly, even undertaken by year-end. Thus, the dollar was buoyed against most peers yesterday.Markets have been refocused by Democrats winning both of the Senate seats up for grabs in run-off elections in Georgia, giving them a majority in both chambers of Congress. Meanwhile, Democrat President-elect Joe Biden called for trillions of dollars in immediate fiscal support, including increased direct payments (from $600 to $2,000), after a surge in coronavirus cases caused US payrolls to drop for the first time since April. The incoming administration's plan for economic stimulus will be presented this Thursday. Keeping gold from falling lower yesterday were rather attractive prices for buying following its recent slump in the face of rising inflation, combined with a global surge in coronavirus cases and rising political uncertainty as House Democrats started impeachment proceedings against President Donald Trump. After opening higher, the dollar has begun to weaken this morning, which has supported gold to $1,860/oz. Following its recent strong gains, the greenback may be set for a correction today. We would expect bullion to consolidate in the $1,861-1,869/oz technical range. Today's global macro events include scheduled remarks from three regional Fed presidents and the release of US NFIB small business optimism. US politics will continue to generate headlines, with a House vote on the impeachment charges expected tomorrow.