Commodities Daily - January 15, 2020

> Oil trades sideways with US-China trade deal details, EIA monthly report and US inventory data in focus. Ahead of today's EIA inventory data (18:30 Moscow time), investors will be digesting OPEC's monthly report, which we expect to be less bearish than the EIA report released yesterday. We expect the EIA to report very little change in oil inventories. However, given the very high likelihood that the refined products data will be quite bearish amid subdued demand, as the API data indicated, we think the EIA report could be what finally pushes Brent below support at $63.95/bbl. However, we note that any correction could be short-lived given the optimism that could arise if the US-China deal is officially signed and confirms the reports about China's intentions to increase its purchases of US goods.> Gold rebounds on US CPI data and US-China trade deal concerns. The global market focus is now on the details of the phase one trade deal that is expected to be signed today. We note that all of the details of the deal that emerged yesterday originated from unnamed sources reportedly familiar with the deal. It thus appears that many various possibilities are still in play today. It is possible that we will see more US tariff cuts than previously announced. We are more inclined to assume that markets will react positively to the formal signing of the deal and expect gold to revisit the $1,535/oz mark later in the day today.OIL TRADES SIDEWAYS WITH US-CHINA TRADE DEAL DETAILS, EIA MONTHLY REPORT AND US INVENTORY DATA IN FOCUSAfter sliding $0.5/bbl in early European trading yesterday, front-month Brent yet again bounced back from support at $63.95/bbl, swiftly recovering to above $64/bbl and then peaking at $65/bbl in the lead-up to the open on Wall Street. Among the factors supporting prices midday yesterday were reports of record Chinese crude oil imports in 2019 (10.12 mln bpd on average, up 0.88 mln bpd y-o-y), a sharp 0.36 mln bpd decrease in Kazakh oil output to 1.64 mln bpd (suggesting issues at one of the country's major projects) and a breakdown in talks over a ceasefire in Libya (now producing 1.11 mln bpd). Later yesterday, the EIA released its monthly oil market report, which was mostly bearish. The main takeaway, in our view, was the strong 0.22 mln bpd downward revision to the 2020 "call on OPEC crude" estimate (the level of OPEC production required to keep the oil market in balance), to 28.95 mln bpd. The change was partly due to a 0.13 mln bpd upward revision to the 2020 US oil production growth forecast to 1.06 mln bpd, with average production next year now seen at 13.3 mln bpd.Global markets are focused on the phase one US-China trade deal, which is expected to be signed today. Yesterday, Reuters reported that China has pledged to buy almost $80 bln of additional US manufactured goods, increase its purchases of energy from the US by $50 bln and boost its purchases of US services by $35 bln over the next two years. If true, this would trim the $300 bln annual trade gap between the two countries. However, it is hard not to be skeptical over China's ability to absorb such amounts of imports without hurting domestic producers and jeopardizing ties with other suppliers. Furthermore, a Bloomberg report yesterday suggested that US import tariffs could remain in place until after the presidential election in November, which boosted trade concerns and weighed on risk appetite. US Treasury Secretary Steven Mnuchin noted yesterday that "if the president gets a phase two in place quickly, he'll consider releasing tariffs as part of phase two." Brent eventually settled at $64.49/bbl, fixing $0.29/bbl above the previous settlement.Overnight, the API reported that US crude stocks increased by 1.1 mln bbl to 431.4 mln bbl last week (the EIA's latest report also estimated them at 431 mln bbl). The buildup came amid a 0.19 mln bpd decrease in refinery runs and a very strong 1.1 mln bpd increase in imports. The refined product data was even more bearish, showing a 3.2 mln bbl build in gasoline stocks and a 6.8 mln bbl increase in distillate inventories. The buildup across all categories weighed on Brent, which this morning is retreating toward $64/bbl, having traded around $65/bbl overnight. Ahead of today's EIA inventory data (18:30 Moscow time), investors will be digesting OPEC's monthly report, which we expect to be less bearish than the EIA report released yesterday. As for the inventory data, the Bloomberg consensus is for a 1.1 mln bbl draw in crude inventories, a 3.25 mln bbl increase in gasoline stocks and a 1.65 mln bbl build in distillate stockpiles. We expect very little change in oil inventories. However, given the very high likelihood that the refined products data will be quite bearish amid subdued demand, as the API data indicated, we think the EIA report could be what finally pushes Brent below $63.95/bbl. However, we note that any correction could be short-lived given the optimism that could arise if the US-China deal is officially signed and confirms the reports about China's intentions to increase its purchases of US LD REBOUNDS ON US CPI DATA AND US-CHINA TRADE DEAL CONCERNSAfter sliding almost $13/oz early yesterday to the $1,535-1,540/oz range, gold started to recover and consolidated around $1,545/oz later in the day. One of the highlights that provided mild tailwinds for gold yesterday was the December US CPI print that showed a slight slowdown in underlying inflation. This supports the Fed's current stance of keeping interest rates unchanged through this year. Note that this followed Friday's US nonfarm payroll report that showed a moderation in job growth in December. Both pieces of data point to a slowdown in domestic demand. Note that any increase in the likelihood that the Fed will cut rates at least once this year would have a strong positive impact on gold prices. Following the CPI data, gold continued to benefit from increased safe-haven demand after a Bloomberg report suggested that US import tariffs could remain in place until after the November presidential election. This reignited trade concerns and weighed on risk appetite. US Treasury Secretary Steven Mnuchin said yesterday that "if the president gets a phase two in place quickly, he'll consider releasing tariffs as part of phase two."As we noted in the oil section above, the global market focus is now on the details of the phase one US-China trade deal that is expected to be signed today. We note that all of the details of the deal that emerged yesterday originated from unnamed sources reportedly familiar with the deal. It thus appears that many various possibilities are still in play today. For example, it is even possible that we will see more US tariff cuts than previously announced. We are inclined to assume that markets will react positively to the formal signing of the deal and expect gold to revisit the $1,535/oz mark later in the day