Commodities Daily - January 13, 2022

> Oil prices rise to new YTD highs after mixed EIA inventory report and US CPI data. Today, investors will eye December US PPI data, US weekly initial jobless claims and the Senate Banking Committee's hearing on Fed Governor Lael Brainard's nomination for vice chair of the central bank's Board of Governors. Brent, in our view, is likely to start consolidating around the $84/bbl mark, as the US inflation prints have intensified the calls for the Fed to start raising interest rates as soon as March.> Gold climbs to $1,825/oz following US inflation print. Gold rose from $1,820/oz to $1,825/oz yesterday, while the US 10y Treasury yield edged up from 1.73% to 1.74%. Gold is still trading near $1,825/oz as we write. Today, the market awaits the US PPI for December, weekly initial jobless claims and the ECB's economic bulletin. We expect bullion to trade in a $1,810-1,825/oz range today.> Base metals extend rally on Fed comments. Base metals extended their rally yesterday as investors reacted to Fed rhetoric. Prices might have overreacted, however, as tapering remains in sight, while the December US CPI data suggests action will be taken.OIL PRICES RISE TO NEW YTD HIGHS AFTER MIXED EIA INVENTORY REPORT AND US CPI DATAYesterday, Brent rose $0.7/bbl to as high as $85.2/bbl, drawing support from dollar weakness after the December US CPI print came in a bit higher than expected. Meanwhile, the EIA inventory report showed US commercial crude oil inventories dropping (-4.55 mln bbl) in contrast to rising stockpiles of gasoline (+7.96 mln bbl) and distillates (+2.54 mln bbl). Another important highlight from the EIA report was that stockpiles at Cushing fell by 2.75 mln bbl, the first decline in eight weeks, with the Keystone Pipeline outage contributing to the substantial draw. We expect a smaller Cushing draw and a slight rise in total US commercial stockpiles in next week's report. With refinery outages rising and turnarounds upon us, we think US crude stocks will rise slightly on average in January, and then build by around 11 mln bbl in February.The jump in gasoline inventories put the build over the past two weeks at 18.1 mln bbl, the second biggest buildup over two weeks on record. The surge in gasoline stockpiles has come amid a seasonal ease in demand, which has probably been compounded by hesitancy to travel amid the spread of Omicron. Demand dropped to the lowest level since April on a four-week average basis, and it remains below pre-pandemic levels on a seasonal basis. Next week, we think US gasoline stocks are likely to grow by just 3-4 mln bbl amid rising demand and exports. Meanwhile, US distillate stocks rose, as exports remained low. However, they could decline slightly next week as exports start to pick up. Winter temperatures are expected to remain below the five-year averages through January 14, which should drive demand higher. Total commercial stocks (excluding the SPR) fell by 4.48 mln bbl amid strong draws in propane stocks and the "other oils" category, which helped drive oil prices higher following the release. Front-month Brent eventually settled at $84.67/bbl, fixing $0.95/bbl above the previous settlement.This morning, Brent is sliding toward $84.3/bbl. One source of pressure was a Bloomberg report showing that road traffic has thinned across Asia at the start of the year as Omicron sweeps through the major crude-importing region. Flight cancellations are also mounting in Asia. Omicron's emergence in China remains the biggest concern for the oil market. An Omicron outbreak has already led to the lockdown of Anyang, a city of 5 mln people, while the nation is also battling an outbreak of the Delta variant in Xi'an. In India, restrictions have been reinstated in the capital as infections surge, although the federal government has avoided instituting nationwide curbs. Today, investors will eye December US PPI data, US weekly initial jobless claims and the Senate Banking Committee's hearing on Fed Governor Lael Brainard's nomination for vice chair of the central bank's Board of Governors. Brent, in our view, is likely to start consolidating around the $84/bbl mark, as the US inflation prints have intensified the calls for the Fed to start raising interest rates as soon as LD CLIMBS TO $1,825/OZ FOLLOWING US INFLATION PRINTGold rose from $1,820/oz to $1,825/oz yesterday, while the US 10y Treasury yield edged up from 1.73% to 1.74%. EUR/USD jumped from 1.137 to 1.144, supporting bullion. US consumer inflation was in the spotlight yesterday, coming in at 7% y-o-y in December, its highest level in nearly four decades but in line with expectations. The m-o-m figure of 0.5% was just above the 0.4% consensus. Inflation was driven by higher food, housing and transportation costs (new and used cars), while energy prices moved lower. Investors had been wary of a higher inflation print ahead of the data, but it turned out to be mostly in line with the consensus. This meant that it did not negate the impact of Powell's recent testimony before Congress and monetary policy expectations remained unchanged, allowing the dollar to weaken and supporting gold. Meanwhile, eurozone industrial production for November came out almost eight times better than expected, which provided a further tailwind for bullion. Comments from Fed officials limited bullion's appeal, however. St Louis Fed President James Bullard said he expects four rate hikes this year. Cleveland Fed President Loretta Meister repeated her support for a March rate hike and stated that the Fed's balance sheet should be reduced without harming the recovery. Fed Governor Lael Brainard described inflation as too high and said that monetary policy should be focused on getting it back to 2%. Gold is still trading at $1,825/oz as we write. Today, the market awaits the US PPI for December, weekly initial jobless claims and the ECB's economic bulletin. There will also be a nomination hearing for Brainard to become Powell's vice chair at the Fed. The consensus for the US PPI stands at 0.4% m-o-m and 9.8% y-o-y. There is likely to be less market interest in today's PPI data than there was for yesterday's CPI data, and as long as today's data does not provide a significant surprise, gold will likely consolidate around current levels. We expect bullion to trade in a $1,810-1,825/oz range SE METALS EXTEND RALLY ON FED COMMENTS Base metals closed mostly in the green yesterday. The 3m LME contract for copper surged 3.54% (+$344/tonne from the previous day's close) to $10,064/tonne, aluminum added 0.42% (+$13/tonne) to $2,983/tonne and nickel was up 1.24% (+$270/tonne) at $22,064/tonne, while zinc inched lower 0.11% (-$4/tonne) to $3,552/tonne.Yesterday, base metals extended the rally and tested psychologically important levels. Copper climbed over $10,000/tonne and aluminum touched $3,000/tonne, while zinc was almost at $3,600/tonne. Prices got closer to their recent, October highs (when the energy crisis hit) as investors took comments made by Fed Chairman Jerome Powell as reassuring, as the regulator seemed to point to a gradual tightening of policy, though four interest rate hikes are expected this year (which would strengthen the greenback and put a lid on all dollar-denominated assets, metals included). Yesterday's US CPI print showed inflation hit a 40-year high of 7.0%. This seems to confirm that the Fed will turn to a tighter monetary policy. We consider the latest move in base metals quotes an overreaction to the mixed rhetoric out of the Fed, and we expect a cool-off across the