Commodities Daily - January 21, 2020

> Oil slides amid negative stock market momentum and despite supply disruptions in Libya and Iraq. This morning, Brent is trending lower toward $64.5/bbl amid a correction in global equity indexes. Investors are becoming increasingly concerned about the outbreak of the new coronavirus in China. On a positive note, the US and France have reached a trade compromise and will not place restrictions on each other, which may boost sentiment today if confirmed. The technical picture suggests that the upside for Brent today is limited to $66/bbl. We expect it to keep fluctuating around the $65/bbl mark for most of the day.> Gold seeing support from safe-haven demand. Yesterday, the IMF lowered its global GDP growth forecasts for 2020 and 2021 in its World Economic Outlook report. Another cause for concern among investors was the outbreak of a new virus in China, which has already resulted in four confirmed deaths. The World Economic Forum in Davos officially kicks off today with a speech by Donald Trump that is expected to touch on global trade. Data-wise, ZEW economic sentiment readings are due from Germany and the eurozone, while the UK will publish unemployment data. We think gold will continue to consolidate throughout the day, as the negative momentum in Asian markets could be reversed by optimistic comments from politicians in Davos. We expect prices to remain in a range of $1,555-1,565/oz.OIL SLIDES AMID NEGATIVE STOCK MARKET MOMENTUM AND DESPITE SUPPLY DISRUPTIONS IN LIBYA AND IRAQAfter surging $1/bbl to $66/bbl early on yesterday, front-month Brent first consolidated within the $65.5-66.0/bbl range and then, when European trading got underway, shifted lower to the $65.0-65.5/bbl corridor for the rest of the day. It eventually settled at $65.2/bbl, fixing $0.35/bbl above the previous settlement. Trading was subdued due to the US holiday. The initial positive oil price momentum has come on the back of oil supply losses over the weekend in Libya and Iraq. Ongoing protests in Iraq, which have been accompanied by blockades of oil fields, could result in supply losses of around 0.12 mln bpd. In Libya, key oil infrastructure (ports and pipelines) has been blockaded by forces loyal to the commander of rebel forces in Libya's east, Khalifa Haftar. The supply losses are much more severe than in Iraq and could soon exceed 1 mln bpd. What was important yesterday was that the oil price showed a rather muted reaction to what are fairly extensive supply disruptions and generally high supply-side risks. To us, this was yet another prime example of an oil supply shock having only a brief and limited positive effect on prices, a pattern that has been very apparent in the last few years. At the start of this century, such disruptions would have caused significant and prolonged price gains. Nowadays, however, the oil market is more concerned about weak demand, whereas supply is plentiful. The large OPEC spare capacity - Saudi Arabia's is close to 2 mln bpd, sufficient to counterbalance almost any supply disruption - is also a key factor in this. Yesterday, OPEC Secretary-General Mohammed Barkindo confirmed that the next OPEC+ meeting will be held in March (so far scheduled for March 5-6), where a decision could be made to counterbalance production losses if disruptions in Libya persist.This morning, Brent is trending lower toward $64.5/bbl amid a correction in global equity indexes. Investors are becoming increasingly concerned about the outbreak of the new coronavirus in China. It has already been confirmed that the virus has caused four deaths and that it can be transmitted from human to human, thus providing a stark reminder of the economic damage done by the SARS virus in 2003. The World Health Organization will hold an emergency meeting tomorrow to discuss the outbreak, which has come right as millions of Chinese are preparing to travel both within China and abroad for the Lunar New Year holidays, which begin this Friday. The main highlight of the day today is the start of the Davos forum. Yesterday, despite the recently signed US-China trade deal, the IMF lowered its global growth estimate for this year to 3.3%, 0.1 pp below its previous estimate released in October. This is slightly negative for risk sentiment, although the mood could turn again later today following Trump's Davos speech. It has been reported that the US and France have reached a trade compromise and will not place restrictions on each other (France had previously threatened to place a tax on US digital companies, while the US was set to respond with tariffs). This headline (especially once it is confirmed) will likely support risk assets such as oil. The technical picture suggests that the upside for Brent today is limited to $66/bbl. We expect it to keep fluctuating around the $65/bbl mark for most of the LD SEEING SUPPORT FROM SAFE-HAVEN DEMANDTrading volumes yesterday were muted due to the observance of Martin Luther King Day in the US. Gold managed to close 0.2% higher thanks in part to the publication of the World Economic Outlook report by the IMF, which lowered its global GDP growth estimates for 2020 and 2021 by 0.1 pp and 0.2 pp to 3.3% and 3.4%. The forecast downgrades were attributed to expected sharp economic slowdowns in India, Mexico and South Africa, as well as the geopolitical risks stemming from the dispute between the US and China.This morning, negative sentiment is predominating in financial markets, with a leading driver being worries about the spread of a coronavirus in China that has already led to four deaths. As for the rest of the day, the Davos forum will kick off, where US President Trump is expected to deliver a speech in which he will touch on global trade. The ZEW indexes for Germany and the eurozone are to be released as well, while the UK will see labor market data. We think gold will continue to consolidate throughout the day, as the negative momentum in Asian markets could be reversed by optimistic comments from politicians in Davos. We expect prices to remain in a range of $1,555-1,565/