Commodities Daily - January 22, 2020

> Oil inches lower on demand-side fears amid sufficient supply. We see little upside for oil prices today given the growing demand-side fears (which have been exacerbated by the outbreak) and the fact that the oil market seems to be shrugging off the crisis in Libya amid ample global supply. In our view, Brent is likely to confront technical support at $63.95/bbl later in the day.> Gold prices under pressure following strong data from the eurozone. The January ZEW indexes for Germany and the eurozone released yesterday significantly exceeded expectations, which supported the euro and pressured gold prices. Speaking in Davos, Donald Trump reiterated his intention to place tariffs on European goods if no deal is reached and also once again subjected the Fed to criticism, saying that it had previously raised rates too fast and now is too slow in cutting them. The impeachment proceedings have not had a significant market impact thus far. This morning, gold is trading close to $1,550/oz, while focus remains on the outbreak of the coronavirus in China. The World Health Organization will convene an emergency meeting today to discuss the issue. Elsewhere, the Davos forum continues today, while key data releases include the Chicago Fed National Activity Index and US existing home sales.OIL INCHES LOWER ON DEMAND-SIDE FEARS AMID SUFFICIENT SUPPLYFront-month Brent slid more than $1/bbl during the first half of the day yesterday, falling just short of $64/bbl amid demand-side fears stemming from the outbreak of the new coronavirus in China. It has already been confirmed that the virus has caused nine deaths (a confirmed case in the US was also reported yesterday) and that it can be transmitted from human to human. The contagion thus provides a stark reminder of the economic damage done by the SARS virus in 2003. The virus is spreading right as millions of Chinese are preparing to travel both within China and abroad for the Lunar New Year holidays. The contagion risks could cause many to cancel their travel plans, thus reducing demand for jet fuel. Around 0.2 mln bpd of jet fuel demand (global demand is now around 7.5 mln bpd) could be lost if the new virus were to reach a scale similar to that of the SARS epidemic, which killed nearly 800 people. Given that oil investors' concerns in recent years have been primarily centered on slowing demand growth, the mounting pandemic fears (the outbreak also poses major economic risks to the Asia-Pacific region as a whole) could potentially have a disproportionate and perhaps excessive negative effect on prices.Furthermore, yesterday in Davos IEA head Fatih Birol said that his agency believed there would be a surplus of around 1 mln bpd in the first half of this year even with the cuts coming from OPEC+, which is even more bearish than what was implied by the agency's latest monthly report (released last week). In the report, the IEA estimated the "call on OPEC crude" (the OPEC production rate required to keep the market in balance) in 1H20 (when demand rarely grows due to seasonal factors) at 28.5 mln bpd, 0.4 mln bpd below OPEC's December output level of 28.9 mln bpd (there is a good chance output could fall to around 28.5 mln bpd due to the disruptions in Libya). Oil prices started to recover heading into yesterday's US trading session, driven first by a stock market rebound and then later by an upbeat EIA drilling productivity report as well. The agency predicted that US tight oil production would rise by only 0.022 mln bpd to 9.2 mln bpd in February (growth hasn't been this low since production declined in February 2019). Output in the Permian Basin was seen growing by 0.045 mln bpd (more than total tight oil production) to 4.8 mln bpd. The report also registered yet another drop in the number of drilled but uncompleted wells (down by 50 to 7,573). We note that the EIA's m-o-m growth forecasts continue to decline, supporting the bullish narrative of a slowdown in US oil production growth. In January last year, m-o-m growth in February was projected at 0.062 mln bpd. Another bright spot for the oil market yesterday was the reappointment of Alexander Novak as Russia's energy minister, which reduces the risks to the integrity of the OPEC+ deal going forward. Brent eventually settled at $64.59/bbl, fixing $0.61/bbl below the previous settlement. Today's macro calendar is almost empty, though the API's weekly report on US oil inventories is due overnight (delayed by one day due to the US holiday on Monday). We see little upside for oil prices today given the growing demand-side fears (which have been exacerbated by the outbreak) and the fact that the oil market seems to be shrugging off the crisis in Libya amid ample global supply. In our view, Brent is likely to confront technical support at $63.95/bbl later in the LD PRICES UNDER PRESSURE FOLLOWING STRONG DATA FROM THE EUROZONEGold dropped sharply from an early level of around $1,568/oz yesterday, losing $10/oz, following the release of strong data from the eurozone. The ZEW current situation index for Germany climbed from 10.7 to 26.7 (the consensus was 15.0), which is the highest reading since July 2015. Meanwhile, the economic sentiment index for the eurozone advanced from 11.2 to 25.6. The data reduced investor concerns about a possible recession in the eurozone and supported the European currency. Gold quotes continued to fall after the US market opened and only began to consolidate after 18:00 Moscow time, settling above $1,555/oz. Speaking in Davos, Donald Trump once again subjected the Fed to criticism, saying that it had previously raised rates too fast and now is too slow in cutting them. He also reiterated his intention to place tariffs on European goods if a deal with the eurozone countries is not able to be reached. However, his comments did not have a significant impact on the market, particularly given that attention was focused on the beginning of impeachment proceedings in the Senate. This morning, gold is trading close to $1,550/oz, while focus remains on the outbreak of the coronavirus in China. The World Health Organization will convene an emergency meeting today to discuss the issue. Elsewhere, the Davos forum continues today, while key data releases include the Chicago Fed National Activity Index (16:30 Moscow time) and US existing home sales (18:00)