Commodities Daily - January 26, 2021

> Oil continues to trade sideways as demand risks offset by supply cuts. As we write, Brent is trading near the $55.5/bbl support level and in our view is more likely today to slide into the $54.4-54.8/bbl range than to consolidate within a $56.2-56.6/bbl corridor, as a resurgent pandemic in certain regions (especially China) and the slow rollout of vaccinations should continue to weigh on the demand outlook. In addition, lingering concerns about potential roadblocks to the Biden administration's $1.9 trln stimulus plan remain. This is weighing on risk appetite on global markets. Major stock market indexes are trending lower today, and the dollar is generating positive momentum. Meanwhile, the supply news out of Russia, Iraq and Libya is providing support for prices. The key things for the market today will be the IMF World Economic Outlook, US January consumer confidence and the overnight weekly API update on US inventories.> Gold prices range-bound, with US stimulus concerns weighing on sentiment. The growing expectations of a delay in the US stimulus package and expectedly downbeat economic forecast revisions from the IMF are likely to weigh on gold prices today. Meanwhile, a potentially positive January reading of the US consumer confidence index could limit the losses. Still, it is looking more and more likely that gold will retest support at $1,840/oz ahead of the FOMC minutes tomorrow.OIL CONTINUES TO TRADE SIDEWAYS AS DEMAND RISKS OFFSET BY SUPPLY CUTSYesterday, front-month Brent was trading around the $55.5/bbl mark, struggling to find a direction amid mixed factors at play. It eventually settled at $55.88/bbl, $0.47/bbl above the previous settlement. Even though the pace of new infections is falling in the US, investors remained focused on demand-side risks, as European countries have set up new restrictions to combat the spread of the virus, while China is still reporting rising new Covid cases. In the latter case, the new Covid wave is hitting fuel demand during the Lunar New Year, which starts on Thursday and will run for 40 days and is known for the travel rush it spurs. This year, however, China has been discouraging travel. Bloomberg estimates that Chinese will take 1.7 bln trips over the holiday period (citing transport ministry estimates), which would be 15% higher y-o-y but still down a massive 40% versus 2019. We note that calendar spreads in Brent and WTI are holding up well globally despite the mobility restrictions in several major economies. This has come amid Libyan exports being restrained, while Iraq is to cut oil output by 0.25 mln bpd in January to 3.60 mln bpd and hold it there through February. Also important is that Urals crude exports from Russia's western ports will drop to 1.13 mln bpd in February, according to a loading program from Russian ports seen by Bloomberg, which compares with 1.38 mln bpd in January, the highest level since April 2020. We think the window for prices to correct significantly lower before demand starts to pick up in 2Q21 is shrinking, although we believe that a sustained rally in oil prices will mean that physical crude markets must first absorb the unwound storage from 4Q20, which will take a few more months.As we write, Brent is trading near the $55.5/bbl support level and in our view is more likely today to slide into the $54.4-54.8/bbl range than to consolidate within a $56.2-56.6/bbl corridor, as a resurgent pandemic in certain regions (especially China) and the slow rollout of vaccinations should continue to weigh on the demand outlook. In addition, lingering concerns about potential roadblocks to the Biden administration's $1.9 trln stimulus plan remain, with a leading US Senate Democrat saying it was not likely to be passed earlier than mid-March given that it currently does not have support from Republicans. This is weighing on risk appetite on global markets. Major stock market indexes are trending lower today, and the dollar is generating positive momentum. Meanwhile, the supply news out of Russia, Iraq and Libya is providing support for prices. The key things for the market today will be the IMF World Economic Outlook, US January consumer confidence (virus-related restrictions may weigh on US consumer confidence in harder-hit areas, but we expect the recent fiscal stimulus package and expectations of more to come to have a positive impact, with a rise in the headline figure) and the overnight weekly API update on US inventories.GOLD PRICES RANGE-BOUND, WITH US STIMULUS CONCERNS WEIGHING ON SENTIMENTGold traded sideways within the $1,850-1,867/oz range yesterday and has drifted closer to the lower end of this corridor in today's trading. On the data front, Germany's Ifo business climate index came in at 90.1 yesterday, down from 92.1 in December, providing headwinds for EUR/USD and gold. The news that Italian Prime Minister Giuseppe Conte will resign today in a tactical move aimed at maximizing his chances of leading a new government also caused concern. Sentiment in global markets is souring, in part because Democratic leaders in the US Senate have stated that the recently unveiled $1.9 trln stimulus plan would likely not pass any earlier than mid-March, since it currently lacks support from Republicans. The potential delay in stimulus is pushing the dollar higher, which is weighing on gold, which now seems to be targeting $1,850/oz. The IMF's updated economic forecasts today could add to the pressure, as there is a good chance we could see some downgrades given the fairly slow rollout of vaccinations and the emergence of new strains of the virus. Meanwhile, the January reading of the US consumer confidence index could limit the potential losses. Though virus-related restrictions may have continued to weigh on consumer confidence in some of the harder-hit areas, we think the recently passed fiscal stimulus package and expectations of more stimulus to come probably had a positive impact on sentiment, so we would expect the gauge to rise. Still, it is looking more and more likely that gold will retest support at $1,840/oz ahead of the FOMC minutes tomorrow. Since Jerome Powell's post-meeting press conference ended up being as dovish as expected, we think the minutes could cause gold to surge toward last week's high of $1,875/oz, with a break above likely leading to a move into the $1,884-1,902/oz corridor. However, we highlight that there is also a good chance that investors, ever-demanding and rather capricious, could be disappointed by a lack of surprises and "more of the same" from the Fed, resulting in global risk-off sentiment, which would weigh on gold prices.