Commodities Daily - July 13, 2020

> Oil rebounds on upbeat IEA report ahead of JMMC meeting this week; EIA drilling productivity report eyed. Brent is hovering just under $43/bbl as we write, with the market awaiting the EIA's monthly drilling productivity report, which will contain the agency's US shale output estimates for August. We expect the report to indicate that the slowdown in shale oil production is losing momentum, which could weigh on prices and push Brent into testing technical support at $42.4/bbl. The upside today will likely be capped at the $43.5/bbl technical resistance mark.> Gold prices stable around $1,800/oz. Friday's CFTC data showed hedge funds increased their net long position in gold. Meanwhile, US economic data and Fed speakers seemed to confirm elevated disinflationary risks for the US economy. Two regional Fed presidents are due to speak today, as is BoE head Andrew Bailey. In addition, US budget data for June will be released.OIL REBOUNDS ON UPBEAT IEA REPORT AHEAD OF JMMC MEETING THIS WEEK; EIA DRILLING PRODUCTIVITY REPORT EYEDFront-month Brent dropped $1/bbl to $41.5/bbl in early trading on Friday but climbed to $43.5/bbl later in the day thanks to a rally on Wall Street and an upbeat IEA monthly report. The IEA raised its global demand estimate for this year for the third month in a row and despite the recent spike in global coronavirus cases (the scale of the rebound in oil demand will be key for prices in 2H20): it now expects it to average 7.18 mln bpd lower this year at 92.09 mln bpd (versus its previous forecast of 91.72 mln bpd). The report highlighted that the easing of lockdown measures in many countries caused a strong rebound in fuel deliveries in May, June and probably July. However, it also warned that while the oil market has undoubtedly made progress, the high, and in some countries, accelerating infection rate is a disturbing reminder that the pandemic is not under control and that the risk to its oil market outlook is almost certainly to the downside. The IEA expects US oil production to recover slowly in 2H20, while the return of Libyan volumes could add another 0.9 mln bpd to global markets by the end of the year. Brent eventually settled at $43.24/bbl, up $0.89/bbl on the day.Brent is hovering just under $43/bbl as we write, with the market awaiting the EIA's monthly drilling productivity report, which will contain the agency's US shale output estimates for August. We expect the report to indicate that the slowdown in shale oil production is losing momentum, which could weigh on prices and push Brent into testing technical support at $42.4/bbl. The upside today will likely be capped at the $43.5/bbl technical resistance mark. Tomorrow will be more eventful, starting with China's first batch of June oil and refined products trade data and followed by the OPEC monthly report and OPEC+ technical committee meeting. The main oil market event this week will of course be the OPEC+ JMMC meeting, which is likely to decide to move the group to phase two of the agreed two-year deal and begin to reduce the production cuts in August. Because OPEC+'s policy requires members to make up for noncompliance by cutting more later, deeper cuts by Iraq, Kazakhstan, and Nigeria among others will mean that the group should be expecting a net m-o-m output increase of 1.2 mln bpd in August instead of the headline 2 mln bpd figure. We think this will not be a very strong concern for oil bulls in the long run, as even after factoring in the gradual return of Libyan output from this month, global stocks should still be drawing down by 3-4 mln bpd from August to December. LD PRICES STABLE AROUND $1,800/OZFriday was a relatively calm day in the gold market, with prices consolidating at elevated levels of around $1,800/oz. Solid demand for safe-haven assets early in the day faded after the US open, when a risk-on rally resumed, and gold prices edged lower to $1,795/oz. A June US PPI reading on Friday showed strong expectations of disinflation. The index fell 0.2% in June (versus an expected 0.4% uptick), while the core PPI rose only 0.1%. Meanwhile, Dallas Fed President Robert Kaplan said that, in his base case of a 4.5-5.0% contraction in US GDP this year, disinflationary pressure would be substantial. In addition, he said the key to restoring business activity was slowing the Covid-19 outbreak. Friday also saw the latest CFTC data on hedge fund positions in gold. Longs rose to 221k contracts, while shorts also increased, climbing by 39.6k contracts; net long positions remain dominant (181k contracts). Two regional Fed presidents are due to speak today, as is BoE head Andrew Bailey. In addition, US budget data for June will be released. We expect gold to continue to trade flat in a range of $1,800-1,820/oz.