Commodities Daily - January 30, 2020

> Oil under pressure from EIA data as WHO could be set to declare global emergency, reported Houthis attack on Saudi targets. Today, oil investors will eye whether the WHO declares a global emergency and preliminary US 4Q19 GDP data. Any surprise to the downside in the latter - particularly if it follows a declaration of a global emergency - could put oil prices under increased pressure. While trade tensions have receded, it is too early for any positive impact to show up in the 4Q19 figures. Meanwhile, the halt of production of the Boeing 373 Max will be a negative factor. All in all, we anticipate Brent finally breaking below support at $58.5/bbl (which it failed to do on two occasions this week). This would in turn establish a $55-56/bbl target zone.> Gold stays elevated around $1,580/oz. Yesterday, Fed Chairman Jerome Powell pledged to increase market liquidity by extending its repo purchases until April and not ending them this month, as originally planned. Gold investors took this as a signal that monetary policy will remain soft, which helped the yellow metal to climb by almost $5/oz to $1,577/oz. Today, the focus will be US GDP data for 4Q19, an emergency WHO meeting on the coronavirus outbreak and the publication of the WGC's report for 2019. Safe-haven demand remains high, so we expect gold to stay above $1,580/oz.OIL UNDER PRESSURE FROM EIA DATA AS WHO COULD BE SET TO DECLARE GLOBAL EMERGENCY, REPORTED HOUTHIS ATTACK ON SAUDI TARGETSAfter rising above $60/bbl on the upbeat API report, front-month Brent drifted lower and was trading very close to $60/bbl during the first half of yesterday's European session before rather quickly climbing to an intra-day high of $60.6/bbl, a move attributable to the claim by Yemen's Iran-aligned Houthi movement that it had conducted rocket and drone strikes at Saudi targets, including Saudi Aramco's Jazan 0.4 mln bpd refinery and petrochemical complex (although we note the facility had not been operating at full capacity anyway). Aramco declined to comment on the report, and few details are available about exactly what happened. However, the oil price gains were very brief and Brent quickly retraced to $59.5/bbl, where it was trading ahead of the EIA inventory report. The report ended up showing a 3.54 mln bbl increase in US crude stocks to 431.6 mln bbl last week, which exceeded the Bloomberg consensus of a 1.29 mln bbl build and defied the API's reported 4.3 mln bbl draw. The buildup came amid a very strong 0.93 mln bpd decrease in refinery inputs to 15.9 mln bpd and a 0.2 mln bpd increase in imports to 6.66 mln bpd, while a 0.09 mln bpd increase in exports to 3.5 mln bpd was insufficient to offset the overall build. US crude production remained steady at a record high of 13 mln bpd. The refined product data was neutral with total petroleum stocks (including oil but excluding strategic petroleum reserves) up 1 mln bbl (after swelling by a massive 30 mln bbl during first two weeks of January). Gasoline stocks grew 1.2 mln bbl to 261.2 mln bbl (a new record high), while distillate stocks were down 1.28 mln bbl to 144.7 mln bbl. A sharp and seasonal decrease in refinery runs is likely to result in further refined product drawdowns but crude oil builds. This should help the economics of refineries, which have been struggling. Despite the negative development in the crude oil category, Brent reacted positively to the report (although there was an initial and very brief correction), briefly rising towards $60/bbl, buoyed by a simultaneous advance in equities. It eventually settled at $59.81/bbl, fixing $0.3/bbl above the previous settlement.Today, oil investors will eye whether the WHO declares a global emergency (15:30 Moscow time). This comes as many countries have been evacuating their citizens from China. Note that major airlines around the world have been suspending or reducing direct flights to major cities in China, which will weigh on jet fuel demand. A declaration of a global emergency would likely dent risk sentiment, as it would confirm that the situation is far from being under control and in fact has not improved since last week. The death toll was at 170 as of late yesterday, while the number of documented infections rose to 7,711. Investors will also eye preliminary 4Q19 US GDP data at 16:30 Moscow time. Any surprise to the downside - particularly if it follows a declaration of a global emergency from the WHO - could put oil prices under increased pressure. What is certain is that while trade tensions have receded, it is too early for any positive impact to show up in the 4Q19 figures. Meanwhile, the halt of production of the Boeing 737 Max will be a negative factor. All in all, we anticipate Brent finally breaking below support at $58.5/bbl (which it failed to do on two occasions this week). This would in turn establish a $55-56/bbl target LD STAYS ELEVATED AROUND $1,580/OZGold retreated yesterday morning and even tested the $1,563/oz mark. However, by the close it had risen sharply, helped by increasing fears that the coronavirus will spread and the outcome to the Fed meeting. FOMC members voted unanimously to leave rates on hold at 1.50-1.75%, while the Fed lowered its categorization of US household spending to "moderate" from "strong," though it noted that the labor market is in good shape. Fed Chairman Jerome Powell pledged to increase market liquidity by extending its repo purchases until April and not ending them this month, as originally planned. Gold investors took this as a signal that monetary policy will remain soft, which helped the yellow metal to climb by almost $5/oz to $1,577/oz. Meanwhile, the probability of interest rate cuts in 2020 rose sharply, and the market now expects at least two cuts this year.Today, the focus will be US GDP data for 4Q19, an emergency WHO meeting on the coronavirus outbreak and the publication of the WGC's report for 2019. Safe-haven demand remains high, so we expect gold to stay above $1,580/