Commodities Daily - January 27, 2021

> Oil ticks higher ahead of EIA inventory data, Fed meeting outcome. Today, oil investors will be mainly focused on the weekly EIA US oil inventory update. We expect a mixed report, with a crude stock draw offset by builds in the refined product categories. Also on today's agenda are December US durable goods orders and the Fed meeting. With the EIA report likely to be mixed and Jerome Powell likely to stay dovish (supporting risk assets), we think Brent may be able to break resistance at $56.3/bbl and rise to $56.7-57.4/bbl today.> Gold eases ahead of Fed's monetary policy statement. We think that Fed Chairman Jerome Powell is likely to stress today that this not the time to talk about exiting QE and that the Fed stands ready to provide further support to the economy, predominantly through even more aggressive asset purchases. We expect the comments to provide substantial support for gold today, sending it toward last week's high of $1,875/oz, with a break above likely paving the way to the $1,884-1,902/oz corridor.OIL TICKS HIGHER AHEAD OF EIA INVENTORY DATA, FED MEETING OUTCOMEFront-month Brent was quoted near $55.5/bbl before European trading got underway yesterday. It then rose to $56.3/bbl before consolidating around $56/bbl during the US session and eventually settling at $55.91/bbl, fixing $0.03/bbl above the previous settlement. One bullish factor was that Urals exports from Russia's western ports will drop to 1.13 mln bpd in February, this according to a loading program seen by Bloomberg. This is well below the 1.38 mln bpd level for January, the highest level since April 2020. There are two possible explanations for this. Either Russia is compensating for overproduction under the OPEC+ deal last year, or a decision was made at a high level to divert oil to domestic refiners in order to boost refined product output and exert some downward pressure on gasoline prices, which surged early this year. We note that oil prices edged up after reports of a blast in Riyadh, though the cause of the explosion in the Saudi capital is still unclear.Overnight, the API reported a 5.3 mln bbl draw in US crude stocks to 481.8 mln bbl last week amid a 0.47 mln bpd drop in imports and despite a 0.08 mln bpd drop in refinery runs. Cushing crude stocks fell 3.5 mln bbl. The refined product data showed a 3.1 mln bbl rise in gasoline stocks and 1.4 mln bbl build in distillate stocks. The EIA data is due today at 18:30 Moscow time. The consensus is for a 1.5 mln bbl crude stock build, 1.3 mln bbl rise in gasoline stocks and 0.5 mln bbl draw in distillate stocks. We expect a crude stock draw of around 3 mln bbl, which is likely to be offset by rising gasoline and distillate stocks. The positive developments we expect in the crude category would likely be enough to provide mild support to prices. Also on today's agenda are December US durable goods orders and the Fed meeting. With the EIA report likely to be mixed and Jerome Powell likely to stay dovish (supporting risk assets), we think Brent may be able to break resistance at $56.3/bbl and rise to $56.7-57.4/bbl. This morning, Brent is pushing toward yesterday's high amid easing concerns about a sharp drop in travel during the Chinese Lunar New Year, with Covid-19 cases seemingly on the decline. Official Chinese data showed 75 new confirmed cases today, the lowest since January 11.The Biden administration is expected to announce a temporary suspension of new oil and gas leases for US federal lands and waters today, this following an earlier round of executive orders aimed at combating climate change. Reuters is reporting that the upcoming order would affect leasing activities and not permitting, which means it is possible the government will continue providing drilling permits to those who picked up leases in the series of auctions held in the final days of the Trump administration. As we pointed out last week, since producers hold enough permits for at least two years given the current production rates, we see this order having little if any impact on US crude and gas production in 2021 unless the currently approved permits, which are valid for two years with the option to apply for a two-year extension, are also 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.GOLD EASES AHEAD OF FED'S MONETARY POLICY STATEMENTGold continued to trade around the $1,855/oz mark yesterday but slid to $1,845/oz this morning. The dollar strengthened again yesterday, providing gold with a headwind amid rising expectations that it will take time for the massive US fiscal stimulus package to work its way through Congress. Another highlight was yesterday's rather upbeat IMF World Economic Outlook, with the fund now expecting the global economy to grow 5.5% this year, a 0.3 pp increase from October's forecast, and US GDP growth expected at 5.1% this year, up from the previous estimate of 3.1%. Meanwhile, January US Consumer Confidence grew this month, beating consensus estimates, which could result in higher consumer spending and supports inflation growth prospects. However, some market participants are taking profits in their long-dollar positions ahead of today's conclusion to the FOMC meeting (22:00 Moscow time), where the Fed is expected to confirm its intention to maintain ultra-loose policy for the foreseeable future. EUR/USD has recovered to 1.216, although gold has exhibited a muted reaction to this move. We partially attribute this morning's correction in gold to receding concerns over the coronavirus situation in China, where the number of new infections appears to be declining. Official data indicated 75 new cases today, the lowest daily rise since January 11.The outcome to the FOMC meeting will be today's main event for gold investors. Last year's extraordinary efforts by monetary policymakers in terms of both policy accommodation and communication and guidance have left the FOMC well positioned to hold a steady course for several quarters into the recovery. In establishing qualitative inflation-related guidance for both interest-rate policy (in August) and asset purchases (in December), the Fed has largely removed itself as a source of volatility in the financial markets for the foreseeable future. With a fixed trajectory on these fronts for at least 1H21, the market will focus on the committee's economic assessment and the tone of Powell's press conference. We think Powell will be consistent with his recent public comments that this is not the time to talk about exiting QE. Instead, he will stress that the Fed stands ready to provide further support to the economy, predominantly through even more aggressive asset purchases. We expect the comments to provide substantial support for gold today, sending it toward last week's high of $1,875/oz, with a break above likely paving the way to the $1,884-1,902/oz corridor. However, there is also a good chance that investors 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. Should gold break below the $1,840/oz support level, it could fall to as low as $1,818/oz.