Commodities Daily - January 20, 2021

> Oil prices rise despite downbeat IEA report. Rising risk appetite yesterday amid Janet Yellen's call on US lawmakers to "act big" on stimulus pushed Brent above resistance at $55.6-56.2/bbl despite a downbeat IEA monthly oil market report. Today, investors will eye December eurozone CPI data, Joe Biden's inauguration and the API US inventory data due overnight. In our view, oil prices are set to trade sideways today, with the upside for Brent likely limited to $56.7/bbl. We note that failure to break above this resistance level could be followed by a drop toward this month's low of $54.5/bbl.> Gold advances as dollar weakens and risk appetite grows. Today's key event is the inauguration of Joe Biden as the new president of the US. In addition, BoE Governor Andrew Bailey is scheduled to speak, while Canada will see a central bank rate decision. Data-wise, the monthly eurozone CPI and US mortgage applications will be the main highlights. A Japanese rate decision is due early tomorrow. We believe gold has enough impetus to finally break past resistance at $1,862/oz (having cleared the $1,845/oz resistance level), which would open the way to the next resistance level at $1,867/oz.OIL PRICES RISE DESPITE DOWNBEAT IEA REPORTAt the start of the day yesterday, front-month Brent was trading around $55/bbl as oil investors awaited the release of the monthly IEA oil market report. Like the EIA's report last week, but unlike the OPEC report earlier this week, IEA's new market outlook contained a downward revision to the global oil demand estimate for this year (down 0.28 mln bpd to 96.64 mln bpd, up from 91.19 mln bpd in 2020). Demand forecasts were revised downward for most OECD countries, led by the US and Europe, though there were also widespread downward revisions for non-OECD countries. The IEA cut its demand estimate for 1Q21 by 0.6 mln bpd, but it now expects demand to average 98.6 mln bpd in 2H21, around 4 mln bpd more than in 1H21, as the vaccine rollouts should speed up the recovery. This implies that demand will substantially exceed supply in 2H21, leading to steeper declines in global inventories, which would give OPEC+ the opportunity to bring back around 1.5 mln bpd of production from the 7.2 mln bpd currently offline, according to the agency. As we have already noted this week, very few investors have been willing to short the market given the upbeat 2H21 outlook.The non-OPEC supply estimate for 2021 was raised just slightly (by 0.06 mln bpd), as higher oil prices and a tighter market have raised the IEA's expectations for drilling and completions in North America this year. The agency also highlighted that US shale producers, who normally jump on price gains to ramp up drilling, have signaled a more cautious approach this time, meaning that "OPEC+ may start to reclaim the market share it has steadily lost to the US and others since 2016." Preliminary data for December showed that total OECD oil and refined product stocks fell by a massive 67 mln bbl to 3,041 mln bbl, which, if confirmed by the final data, would reduce the total overhang versus the five-year average by 50.3 mln bbl to 116 mln bbl, with the crude oil overhang shrinking to 48 mln bbl.Yesterday's EIA drilling productivity report was more upbeat. The EIA now expects US tight oil output to drop 0.09 mln bpd m-o-m to 7.52 mln bpd in February. It expects overall US output to fall for the fourth straight month, despite the gradual rise in the active oil rig count since October amid the recovery in prices. This is because a tepid demand recovery and investor pressure to reduce debt has kept companies from rushing to complete new wells. The fact that the IEA joined OPEC and the EIA with an upbeat view on 2H21, along with the rise in global risk appetite yesterday fueled by Janet Yellen's call on US lawmakers to "act big" on stimulus, helped Brent generate positive momentum. The front month contract eventually settled at $55.90/bbl, $1.15/bbl above the previous settlement. This morning, it broke above resistance at $55.6-56.2/bbl and was heading toward the next resistance level of $56.7/bbl. In our view, Brent is unlikely to break above this level today and will likely trade sideways for the rest of the day. We note that failure to break above resistance at $56.7/bbl could be followed by a drop toward this month's low of $54.5/bbl. Investors today will eye December eurozone CPI data, Joe Biden's inauguration and the API US inventory data due overnight.GOLD ADVANCES AS DOLLAR WEAKENS AND RISK APPETITE GROWSGold traded around the $1,840/oz mark yesterday, barely reacting to the dollar weakening and a correction in 10y US Treasury yields. This morning, however, bullion has climbed to $1,855/oz as EUR/USD continues to trend higher and has almost reached 1.216 after trading near 1.206 at the start of the week. The Italian Senate passed a vote of confidence in the government, providing substantial tailwinds for EUR/USD. Janet Yellen, the incoming Treasury secretary (who could be confirmed on Thursday), gave a speech yesterday in which she affirmed her commitment to more stimulus. She also said the US is prepared to take on China's "abusive" trade and economic practices, and that the Biden administration won't pursue a weak dollar. Today's key event is the inauguration of Joe Biden as the new president of the US. Moderate optimism is prevailing in markets, with the euro finding support from reports that the ECB is purchasing government bonds in such volumes that it is reducing spreads in the bonds of the various countries. Volatility in European bonds is low and in fact even Italian debt has been rather stable of late despite the political turmoil. Today, BoE Governor Andrew Bailey is scheduled to speak, while Canada will see a central bank rate decision. Normally an unimportant event for markets, the US presidential inauguration (starting 20:00 Moscow time) will garner some global investor interest due to the civil unrest and policy swings that have taken place since the US election. Data-wise, the monthly eurozone CPI and US mortgage applications will be the main highlights. A Japanese rate decision is due early tomorrow. We believe gold has enough impetus to finally break past resistance at $1,862/oz (having cleared the $1,845/oz resistance level), which would open the way to the next resistance level at $1,867/oz.