Commodities Daily - July 1, 2021

> Brent holds steady ahead of OPEC+ meeting despite upbeat EIA inventory report. This morning, Brent is continuing to trade near $74.5/bbl, with the oil market focused on OPEC+, which will decide on production plans today. Reportedly, Russia and Kazakhstan are proposing to increase production already in August, while Saudi Arabia and its Gulf Arab allies favor a more cautious approach, all against the backdrop of the fast-spreading Delta coronavirus strain. In our view, OPEC+ is most likely to reach a compromise to increase August output by around 0.5 mln bpd, which would pressure prices just barely, with Brent possibly dipping a little below $74/bbl. A bullish extension of the entire deal beyond 1Q22 could also emerge, in which case Brent could climb all the way to $75.5/bbl.> Gold gained as Treasury yields ease. Gold rose to $1,770/oz yesterday, while the 10y Treasury yield slid to 1.46%. The ADP employment data came in better than expected. Bullion is near $1,775/oz as we write this morning. Today, the market awaits initial jobless claims and Markit and ISM US and eurozone manufacturing PMI data for June. Bullion is likely to remain range-bound between $1,755 and $1,785/oz levels.BRENT HOLDS STEADY AHEAD OF OPEC+ MEETING DESPITE UPBEAT EIA INVENTORY REPORTYesterday, the new Brent front-month contract for September traded around $74.5/bbl, holding within the $73.9-75.3/bbl range. Investors were at first digesting an upbeat US monthly ADP employment report, which showed 700k new private payroll additions last month (though the April data saw a downward revision), while later it was the weekly EIA inventory report that was the focus of the market, driving a brief correction amid a smaller crude oil inventory draw (down 6.7 mln bbl) than the API had reported (down 8.15 mln bbl). Crude inventories fell for the sixth straight week and remained on the fastest decline in decades. The draw came as no surprise as refineries have increased runs and oil production has remained stable, which means that refiners have to take supplies from storage tanks. Meanwhile, gasoline inventories were up 1.50 mln bbl w-o-w, while distillates fell 0.87 mln bbl. Gasoline demand was down w-o-w amid rainy weather across the US and higher retail gasoline prices. Diesel inventories fell for the second week, driven by the shipping market as container traffic along the West Coast is strong.This morning, Brent is continuing to trade near $74.5/bbl, with the oil market focused on OPEC+, which will decide on production plans today. Reportedly, Russia and Kazakhstan are proposing to increase production already in August, while Saudi Arabia and its Gulf Arab allies favor a more cautious approach, all against the backdrop of the fast-spreading Delta coronavirus strain. Also important is that OPEC+ will reportedly consider extending the existing deal given the rather bearish 2022 oil supply outlook and the supply-demand balances presented by the Joint Technical Committee earlier this week. An extension would be a more bullish outcome than expected and would support crude prices through 2022. In our view, OPEC+ is most likely to reach a compromise to increase August output by around 0.5 mln bpd, which would pressure prices just barely, with Brent possibly dipping a little below $74/bbl. A bullish extension of the entire deal beyond 1Q22 could also emerge, in which case Brent could climb all the way to $75.5/ LD GAINED AS TREASURY YIELDS EASEGold prices rose to $1,770/oz yesterday after having earlier slid to $1,760/oz after the 10y US Treasury yield moved down to 1.46% and even touched 1.44% intraday. EUR/USD edged lower to near 1.184. The ADP employment report yesterday showed 692k new private-sector jobs in June, above the consensus of 600k but below the revised May figure of 886k. However, this did not push bullion lower as markets await the nonfarm payroll data on Friday (it has happened before that these reports show significant differences). Meanwhile, several Fed officials spoke yesterday. Dallas Fed president Robert Kaplan took a slightly dovish tone, saying that QE tapering should be done more smoothly to avoid a "taper tantrum" this time. Meanwhile, Atlanta Fed President Raphael Bostic indicated that a full recovery of the US labor market still needs some time. These remarks helped gold prices to consolidate higher during US trading.After its biggest one-month decline in more than four years, gold is trading slightly above $1,775/oz, as we write. While investors await nonfarm payroll data tomorrow (the consensus suggests a 711k increase in June), today will see initial jobless claims (the consensus calls for a 388k decline). Also due today will be the IHS Markit PMI manufacturing index for the US and eurozone for June and the ISM manufacturing PMI for June. We think that bullion is likely to remain range-bound between $1,755-1,785/oz