Commodities Daily - January 22, 2021

> Oil prices slide ahead of today's EIA inventory report. Today, oil investors will be focused on the EIA inventory report due at 19:00 Moscow time. We expect it to show a 3-4 mln bbl crude stock build, along with an increase in both gasoline and diesel stocks, highlighting the steadily deteriorating short-term demand outlook. We think this could pressure Brent to the $54.4-54.8/bbl range later today. Other factors weighing on oil prices have been US President Joe Biden's warning that another 100,000 Americans may die from Covid-19 over the next month, data showing a m-o-m drop in New York City traffic and the lockdowns in China over the past few weeks.> Gold rally ebbs ahead of January DM PMI data. The focus today will be on IHS Markit's preliminary January PMIs (manufacturing, services and composite) for the US and eurozone. A decent print would likely support risk assets and gold today, with gold potentially rising toward yesterday's high of $1,875/oz and a break above likely paving the way to the $1,884-1,902/oz corridor. As we write, bullion is exposed to a correction toward the $1,832-1,845/oz range and could slide if the PMI data disappoints.OIL PRICES SLIDE AHEAD OF TODAY'S EIA INVENTORY REPORTYesterday, front-month Brent traded sideways in a range of $55.5-56.2/bbl before eventually settling at $56.1/bbl, $0.02/bbl above the previous settlement. Global stock markets tested new record highs yesterday, while the dollar slipped as investors continued to bet on major stimulus from the Biden administration, and as global central banks pledged to continue supporting economic growth. One highlight for the oil market yesterday was that President Biden's acting secretary of the interior issued a 60-day halt to new drilling permits and leases across US federal lands. The moratorium is likely to be extended once Biden's nominee Debra Haaland takes over as head of the interior department. Since producers hold enough permits for at least two years given the current production rates, we see this as having little if any impact on US crude and gas production in 2021 unless the currently approved permits, valid for two years with the option to apply for a two-year extension, are at risk. Moreover, offshore development projects through 2021 have already been permitted, which also limits the short-term impact of permitting delays, while only 21% of US oil and 11% of US gas output comes from federal lands and waters.This morning, Brent has slid to as low as $55.25/bbl after President Joe Biden overnight unveiled a national strategy to combat the coronavirus and issued a sobering warning that the pandemic is likely to claim another 100,000 American lives over the next month and that it will only get worse before it gets better. He also said that "the brutal truth is it's going to take months before we can get the majority of Americans vaccinated," which suggests little upside for motor fuel demand in 1Q21. Moreover, data for the week ending January 16 showed traffic on 11 New York City highways down 3.7% m-o-m. Furthermore, the lockdowns in China over the past few weeks have raised questions about the country's ability to control the virus and, hence, the robust 2H21 oil demand forecasts for China from the EIA, OPEC and the IEA. China imposed a lockdown on 1.7 mln people in Beijing's Daxing district on January 17 following a resurgence in cases. Shijiazhuang, a city of 11 mln people near the capital, was locked down earlier in the month, while two cities in the province of Hebei followed suit last week.Today, oil investors will be focused on the EIA inventory report due at 19:00 Moscow time. We expect it to show a 3-4 mln bbl crude oil stock build, along with an increase in both gasoline and diesel stocks, highlighting the steadily deteriorating short-term demand outlook. This week, the API reported a 2.6 mln bbl rise in US crude stocks, a 1.1 mln bbl build in gasoline stocks and a 0.8 mln bbl increase in distillate stocks. We think a downbeat EIA report is likely to pressure Brent to the $54.4-54.8/bbl range later today. We also note that there is resistance at $56.2/bbl, and that a break above could lead to a further rise to $56.6/bbl, although we think this is very unlikely.GOLD RALLY EBBS AHEAD OF JANUARY DM PMI DATAGold was trading around the $1,870/oz mark yesterday morning and failed to break above $1,875/oz on a couple of occasions amid global dollar weakening and general risk-on sentiment. During US trading, it slipped to $1,860/oz, and since then it has been trading sideways within a $1,860-1,870/oz corridor. Yesterday's ECB meeting and interest rate decision ended without surprises, with rates staying unchanged at 0%. The policy statement reaffirmed that rates will remain low and that the bond-buying pandemic emergency purchase program will be held at EUR1.85 trln after being increased last month. However, the ECB signaled that it will not necessarily use the whole package.Investors later turned their attention to the weekly US initial jobless claims data, which dipped by 10k w-o-w to 900k, still a historically high level that points to ongoing job cuts amid the raging pandemic. The risks of unemployment rising further remain potent given the Covid situation is still worsening in the US, although investors are now assuming more US fiscal stimulus will save the day, though this will continue to boost inflation expectations. The focus today will be on IHS Markit's preliminary January PMIs (manufacturing, services and composite) for the US and eurozone. A decent print would likely support risk assets and gold today, with gold potentially rising toward yesterday's high of $1,875/oz and a break above likely paving the way to the $1,884-1,902/oz corridor. As we write, bullion is exposed to a correction toward the $1,832-1,845/oz range and could slide if the PMI data disappoints.