Commodities Daily - January 24, 2020

> Oil recovers on upbeat EIA data although virus spread poses risks; Markit PMI data eyed. Today, oil investors will primarily eye January IHS manufacturing data for the eurozone and for the US. In our view, the PMI data is very likely to be rise m-o-m in light of the optimism stemming from the US-China trade deal. This could support Brent closer to $63/bbl today (technically a break above $62.9/bbl could even lead to a gain to $64/bbl). However, the mounting death toll from the virus, which is unlikely to be contained soon, appears set to keep providing headwinds for risk assets and create more uncertainty over fuel demand. We believe this will keep Brent within the $62-63/bbl range.> Gold prices gain on euro weakness. The ECB yesterday left interest rates on hold and confirmed its intention to continue with QE. At the press conference, ECB President Christine Lagarde confirmed the bank's commitment to pursuing soft monetary policy. This caused the euro to weaken (EUR/USD lost 0.5%) and an almost $15/oz jump in gold, which closed 0.3% higher. Today, the market focus turns to preliminary PMIs in the US and the eurozone. We expect gold to remain restrained in response to the data in light of the Fed meeting taking place on January 28-29. We see it sticking in the $1,550-1,560/oz range.OIL RECOVERS ON UPBEAT EIA DATA ALTHOUGH VIRUS SPREAD POSES RISKS; MARKIT PMI DATA EYEDAfter a continuous correction over the last three days from a high $66/bbl, Brent seemed to have started stabilizing around $62/bbl early in the day yesterday. Ahead of the US open, however, the market yet again reacted to the potential effect on fuel demand of the coronavirus, which drove oil prices to an intraday low of $61.25/bbl. Twenty-five people are now reported dead and 830 cases are confirmed in at least seven countries. The World Health Organization's panel chair yesterday stated that "it has not yet become a global health emergency. It may yet become one," although highlighting that "this is an emergency in China." Also important is that, according to the Coalition for Epidemic Preparedness Innovation, three research teams are to start work on developing vaccines. The plan is to have at least one potential vaccine in clinical trials by June. As of this morning, China has suspended public transportation in 10 cities. This comes as the Lunar New Year - China's busiest travel period - gets underway, although the mass celebrations have been canceled. This will certainly weigh on fuel demand and retail sales in general.Brent was trading close to $61.9/bbl ahead of the EIA inventory report, which ended up showing a 0.4 mln bbl decrease in US crude stocks to 428.1 mln bbl last week, which defied both the Bloomberg consensus of a 0.8 mln bbl build and the API's reported 1.6 mln bbl increase. The drawdown came amid a 0.12 mln bpd decrease in imports to 6.43 mln bpd and despite a 0.11 mln bpd decrease in refinery inputs to 16.85 mln bpd and a 0.06 mln bpd decline in exports. US crude production remained steady at a record high of 13 mln bpd. The refined product data was very slightly on the bullish side as well, with total petroleum stocks (including oil but excluding strategic petroleum reserves) down 1.9 mln bbl (after swelling a massive 30 mln bbl previously this month). However, they are still 27 mln bbl higher than last year and 91 mln bbl above 2018 levels. Gasoline stocks grew 1.74 mln bbl to 260 mln bbl, while distillate stocks were surprisingly down 1.18 mln bbl to 146 mln bbl. The net drawdown was mainly due to a hefty 5.4 mln bbl decrease in the "other oils" category. Brent struggled for direction following the release and eventually settled at $62.04/bbl yesterday, fixing $1.17/bbl below the previous settlement. It is important to note that the fact that total inventories failed to build yet again amid sluggish demand (partly due to lower refined product production) was an upbeat, oil-price-supportive sign. Refined product inventory drawdowns can now be expected in February when refiners lower production as they go deeper into the seasonal maintenance period. Today, oil investors will primarily eye January IHS manufacturing data for the eurozone (the aggregate figure will be released at 12:00 Moscow time) and for the US (17:45). In our view, the PMI data is very likely to be rise m-o-m in light of the optimism stemming from the US-China trade deal. This could support Brent closer to $63/bbl today (technically a break above $62.9/bbl could even lead to a gain to $64/bbl). However, the mounting death toll from the virus, which is unlikely to be contained soon, is likely to keep providing headwinds for risk assets and create more uncertainty over fuel demand. We believe this will keep Brent within the $62-63/bbl LD PRICES GAIN ON EURO WEAKNESSGold held steady at $1,550-1,555/oz yesterday morning. The day's main event was the ECB meeting at which the bank left interest rates on hold (the deposit rate at -0.5% and the key rate at zero) and confirmed its intention to continue with QE. ECB President Christine Lagarde said the ECB's policy will remain soft and stimulatory, which caused the euro to weaken significantly (EUR/USD lost 0.5% to reach a seven-week low). This pushed gold up to $1,568/oz. The subsequent release of US initial jobless claims (which totaled 211k, below the consensus of 214k) had a neutral impact on gold, which closed 0.3% higher on the day.Today, the focus of investors is the publication of preliminary PMI indices in the US and the eurozone. Market participants will probably be restrained in response to statistics ahead of the Fed meeting to be held on January 28-29, so gold is likely to remain in the range of $1,550-1,560/