Commodities Daily - January 25, 2021

> Oil trades sideways as US crude oil inventories rise but supply from Iraq and Libya set to fall. This week, oil investors will eye the Fed meeting, first print for US 4Q20 GDP, US December personal income and spending data, as well as the EIA's monthly report on petroleum supply, which will include US November crude oil production. As we write, Brent is hovering just above $55.2/bbl support. We think it is most likely to yet again slide into the $54.4-54.8/bbl range, as new Covid-19 cases continue to climb in China, weighing on its demand growth prospects. However, we do not expect prices to dip even lower amid supply disruptions in Libya and Iraq's pledge to cut output by 0.25 mln bpd in January and February. > Gold trading sideways following mixed DM PMIs as investors prepare for busy week ahead. This week looks to be shaping up rather well for gold, with the main event being the Fed decision on Wednesday, at which the FOMC is expected to affirm its commitment to maintaining the current super-soft monetary policy for the for seeable future, thus supporting markets. Today, markets will be watching the speeches of world leaders at virtual Davos, the most prominent of who is Xi Jinping. Several ECB executives are scheduled to speak, with ECB President Christine Lagarde due at 11:45 and 19:15 Moscow time. In our view, before the Fed decision gold could retest support at $1,840/oz; however, following Chairman Powell's press conference we think gold could push toward last week's high of $1,875/oz, with a break above likely leading to gains into the $1,884-1,902/oz corridor.OIL TRADES SIDEWAYS AS US CRUDE OIL INVENTORIES RISE BUT SUPPLY FROM IRAQ AND LIBYA SET TO FALLOn Friday, after trading around $55.5/bbl, front-month Brent slid to the $54.5/bbl mark, mirroring negative stock market momentum. Both oil and stocks had reacted to the downbeat eurozone January PMIs. However, Brent failed to break below $54.5/bbl, similarly to how it resisted moving below this level on January 18 (this remains the trough level for the month so far for Brent). Once US trading got underway, however, Brent pared back all of its earlier losses, boosted by Markit January US PMI data showing manufacturing activity having surged to its highest level in almost 14 years amid strong growth in new orders. The services sector PMI, meanwhile, increased to 57.5 in January from 54.8 in December. Ahead of the weekly EIA inventory report, Brent was trading near $55.5/bbl. The EIA data showed a 4.35 mln bbl increase in US crude stocks to 486.56 mln bbl last week, amid a 0.76 mln bpd drop in exports to 2.25 mln bpd. A 0.19 mln bpd decline in imports to 6.05 mln bpd and a 0.11 mln bpd rise in refinery inputs to 14.76 mln bpd were insufficient to offset the overall build. US crude output remained flat at 11.0 mln bpd. The EIA's gasoline and distillate data, meanwhile, was mixed. Gasoline stocks fell 0.26 mln bbl to 245.2 mln bbl, whereas distillate stocks were up 0.46 mln bbl to 163.7 mln bbl. We note that total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) fell by a slight 0.68 mln bbl as large builds in crude oil and jet fuel (up 2.16 mln bbl) were offset by an even larger 6.2 mln bbl draw in propane stocks and a 1.1 mln bbl draw in the "other oils" category. We highlight that gasoline inventories showed their first draw since mid-December amid an uptick in demand, which was over 8 mln bpd for the first time this month. The buildup in crude stocks weighed on sentiment, pushing Brent $0.5/bbl lower later on the day. The slump in crude oil exports occurred amid growing concern owing to expanding lockdowns, which is weighing on demand for US crude (which has to be priced cheaper for export flows to start growing). Also, the latest Baker Hughes report showed active US oil rigs having risen by two units to 289, their highest level since May. Brent eventually settled at $55.41/bbl, $0.69/bbl below the previous settlement.This morning, Brent is trending higher toward $55.5/bbl, drawing support from news that the Libyan paramilitary force responsible for safeguarding the OPEC nation's oil ports has ordered a halt to crude exports at three eastern terminals while they press salary demands. Also supportive is the recent statement by the deputy head of the Iraqi state oil company that the country plans to cut oil output in January and February to make up for breaching its OPEC+ quota last year. He said that Iraq, OPEC's second-biggest producer, would produce around 3.60 mln bpd for those two months (versus around 3.85 mln bpd in December). This week, oil investors will eye the Fed meeting, first print for US 4Q20 GDP, US December personal income and spending data, as well as the EIA's monthly report on petroleum supply, which will include US November crude oil production. Also this week, investors will eye the releases of the North Sea and West African oil-loading programs for March, just before Brent futures expire. As we write, Brent is hovering just above $55.2/bbl support. We think it is most likely to yet again slide into the $54.4-54.8/bbl range, as new Covid-19 cases continue to climb in China, weighing on its demand growth prospects. However, we do not expect prices to dip even lower amid supply disruptions in Libya and Iraq's pledge to cut output by 0.25 mln bpd in January and February. GOLD TRADING SIDEWAYS FOLLOWING MIXED DM PMIS AS INVESTORS PREPARE FOR BUSY WEEK AHEADDuring the first half of the day on Friday, gold slid almost $33/oz to $1,838/oz, mirroring stock markets, against the backdrop of downbeat eurozone January PMIs showing a widening economic contraction in January, with the composite figure falling from 49.1 in December to 47.5 (which would suggest another decline in GDP in 1Q21). Manufacturing continued to outperform, while services remains impacted by lockdowns and pair back the losses. We note that gold on multiple occasions this month received strong support below the $1,840/oz level. The turnaround on Friday was sparked in particular by upbeat IHS Markit January US PMI data, which showed US manufacturing activity surging to its highest level in almost 14 years amid strong growth in new orders. Meanwhile, the services PMI rose to 57.5 from 54.8. Overall, gold was supported to above $1,855/oz and is trading at $1,850-1,860/oz this morning. The dollar is retreating globally this morning, correcting after Friday's gains. This week looks to be shaping up rather well for gold, with the main event being the Fed decision on Wednesday, at which the FOMC is expected to affirm its commitment to maintaining the current super-soft monetary policy for the for seeable future, thus supporting markets. Today, markets will be watching the speeches of world leaders at virtual Davos, the most prominent of whom is Xi Jinping. Several ECB executives are scheduled to speak, with ECB President Christine Lagarde due at 11:45 and 19:15 Moscow time. In our view, before the Fed decision gold could retest support at $1,840/oz; however, following Chairman Powell's press conference we think gold could push toward last week's high of $1,875/oz, with a break above likely leading to gains into the $1,884-1,902/oz corridor.