Commodities Daily - January 19, 2022

> Oil rises again amid new supply disruption before IEA monthly oil market report. Today, investors will primarily eye the monthly IEA oil market report, which is expected to be upbeat and could help Brent stay near $89/bbl throughout the session. The agency's executive director, Fatih Birol, recently said that demand is looking stronger than many observers had expected.> Gold slides amid rise in US Treasury yields. Gold slipped back from $1,820/oz to $1,815/oz yesterday, while the US 10y Treasury yield rose from 1.79% to 1.87%. Gold is trading near $1,815/oz as we write. Today's data releases include December housing starts and building permits data from the US. We expect bullion to trade in a $1,810-1,825/oz range.> Base metals mixed ahead of Fed meeting; thermal coal still on the rise. Base metals were mixed yesterday in anticipation of next week's Fed meeting. The tightness across all base metals markets should keep prices from falling below technical support levels. Thermal coal prices remain elevated as the Indonesian export ban remains in place. Prices will react once the ban is lifted, which we expect shortly.OIL RISES AGAIN AMID NEW SUPPLY DISRUPTION BEFORE IEA MONTHLY OIL MARKET REPORTBrent stabilized within a $87-88/bbl range yesterday morning before climbing to $88.7/bbl later on, with OPEC's monthly oil market report released yesterday highlighting that the cartel expects global oil markets to remain "well-supported" this year by robust demand, despite central banks tightening monetary policy. The OPEC Secretariat said the impact of Omicron would be mild and short-lived and noted that OECD oil and refined product stockpiles were considerably below their five-year averages. Another important highlight was that OPEC failed to increase production at its planned pace in December, adding just 0.166 mln bpd compared with the monthly target of 0.25 mln bpd, as a number of members were hindered by underinvestment and unrest. Meanwhile, global demand growth and non-OPEC supply estimates for 2021 and 2022 were largely unchanged from last month.Another important release yesterday was the EIA's monthly drilling productivity report, with the agency forecasting a 0.104 mln bpd rise in US shale oil production in February to 8.54 mln bpd. The pace of the EIA's month-ahead shale production growth forecasts continues to quicken. The November forecast for December stood at 0.085 mln bpd and the December forecast for January was 0.096 mln bpd. Furthermore, oil production in the Permian Basin reached a record 4.92 mln bpd in December as the US's most prolific shale patch is leading the output recovery. Brent eventually closed yesterday at $87.51/bbl, up $1.03/bbl on the day.This morning, Brent rallied to a new YTD high of $89.05/bbl before easing toward $88/bbl after a key 0.45 mln bpd oil pipeline running from Iraq to Turkey was hit by an explosion of an unknown nature, removing crucial supplies from an already tight market. The blast is the latest in a series of market disruptions in recent months. However, the latest headlines suggest that the pipeline has resumed full flow, which is already putting pressure on prices. Today investors will primarily eye the monthly IEA oil market report, which is expected to be upbeat and could help Brent stay near $89/bbl throughout the session. The agency's executive director, Fatih Birol, recently said that demand is looking stronger than many observers had expected. The weekly API inventory update will be released overnight, delayed by one day due to the US holiday earlier this LD SLIDES AMID RISE IN US TREASURY YIELDSGold slipped back from $1,820/oz to $1,815/oz yesterday, while the US 10y Treasury yield rose from 1.79% to 1.87%, the highest level in two years. EUR/USD fell from 1.141 to 1.133, creating headwinds for bullion. Yesterday's macro data did not provide enough support to prevent gold prices from back-tracking slightly. In the January ZEW survey for the eurozone, the economic sentiment index came in at nearly double the December level (49.4 versus 26.8), which pointed to an improvement in the European economy and suggested that the ECB could start to roll back its stimulus sooner than had been expected, which would provide tailwinds for gold. The Empire State manufacturing index from the US provided an even bigger surprise - it fell to -0.7 in January, well below the consensus estimate of 25 and December's 31.9 reading. Although inflation may have been a factor, it is likely that the Omicron strain was the main reason for the precipitous decline. New York was seeing more than 90k new Covid cases per day early in the year, though case numbers have since come down to around half that level. The January reading of the NAHB housing market index was also less upbeat than expected. However, the gold-supportive macro statistics were not enough to offset the pressure from the rise in the 10y US Treasury yield and growing expectations that the Fed will hike rates at the March meeting.Gold is trading near $1,815/oz as we write. Today's data releases include December housing starts and building permits data from the US. Analysts expect both prints to show a slowdown, but we do not think this would provide much support for gold. Monetary policy expectations have become the dominant factor driving gold prices, and the growing expectations for an early liftoff have started pushing gold prices lower. We expect bullion to trade in a $1,810-1,825/oz range SE METALS MIXED AHEAD OF FED MEETING; THERMAL COAL STILL ON THE RISEBase metals had a mixed session yesterday. Three-month LME copper contracts fell 0.57% (-$55 on the day) to $9,676/tonne, aluminum added 0.92% (+$28) to $3,025/tonne, nickel was almost flat at $22,073/tonne, while zinc rose 1.68% (+$59) to $3,567/tonne.The mixed performance was caused by expectations of rate hikes in the US. A sharp rise in 10y Treasury yields yesterday indicates that investors are concerned over the imminent return to tighter monetary policy in the US. Although the macroeconomic picture appears negative for base metals, the tightness across all base metal markets should keep prices above their 50-, 100- and 200-day moving averages, which continue to act as strong support levels. With global inventories at international warehouses remaining low, base metal quotes look to be sufficiently supported in the face of potential dollar strength. For now, we expect prices to remain range-bound, albeit with some volatility ahead of the Fed's meeting next week before some calm is brought by the Chinese New Year.Thermal coal prices continue to head north, with the Newcastle price moving closer to its October 2021 high and increasing its premium over the API2 European benchmark. This move is the result of an Indonesian coal export ban introduced in early January after local power plants said they were running out of coal. With Indonesia accounting for about a half of China's coal imports, the ban has caused Newcastle thermal coal, the key benchmark in the Asian region, to surge. The disappearing correlation between the thermal coal price and natural gas quotes (which remain relatively stable, though at elevated levels) confirms that there is a breach in the coal market's fundamentals. All else being equal, we would expect Newcastle quotes to move back below $160/tonne once Indonesia removes the ban and resumes thermal coal exports. We are already seeing Indonesian thermal coal cargoes being prepared for export, so it should only be a matter of time when the export ban is lifted in