Commodities Daily - July 13, 2021

> Oil slides on worsening coronavirus situation but rebounds ahead of IEA market report. Late in the day yesterday, Brent bounced back above $75/bbl, closely tracking EUR/USD dynamics. Investors today are eying the monthly IEA oil market report, a US CPI print for June and API US oil and refined product inventories. In our view, today Brent looks set to retest Friday's high of $75.80/bbl on what is expected to be an upbeat IEA report. Headwinds could come from the US CPI release, a high inflation reading likely to be taken as indicating a quicker tightening of Fed monetary policy. Current support for Brent is $74.20/bbl.> Gold holds steady ahead of US inflation data. Gold traded sideways at $1,790-1,810/oz yesterday while the 10y US Treasury yield traded near 1.36%. Bullion is near $1,810/oz as we write. Today the market awaits the US CPI and NFIB small business optimism index for June. We expect gold to retest support at $1,790/oz today. OIL SLIDES ON WORSENING CORONAVIRUS SITUATION BUT REBOUNDS AHEAD OF IEA MARKET REPORTEarly in the day yesterday, Brent slid $1.60/bbl to $74.20/bbl against the backdrop of new mobility restrictions having been introduced in parts of Japan, South Korea and Vietnam to curb the spread of Delta strain of the coronavirus, clouding the demand outlook for oil. Meanwhile, confirmed Covid-19 cases in the US soared 47% in the week ending Sunday, the largest weekly rise since April 2020. In addition, according to the latest EIA monthly Drilling Productivity Report, released yesterday, crude output at major US shale plays should rise 0.040 mln bpd m-o-m to 7.907 mln bpd in August, with Permian Basin supply seen adding 0.053 mln bpd m-o-m to 4.700 mln bpd next month, while most other basins are expected to record m-o-m declines. The EIA also revised upward its July shale oil production forecast to 7.87 mln bpd from 7.80 mln bpd. Later in the day yesterday, Brent bounced back above $75/bbl, closely tracking EUR/USD dynamics. Yesterday, front-month Brent eventually settled at $75.16/bbl, $0.39/bbl below the previous settlement.Investors today are eying the monthly IEA oil market report (it will have been released by the time you receive this), a US CPI print for June and API US oil and refined product inventories (overnight). In our view, today Brent looks set to retest Friday's high of $75.80/bbl on what is expected to be an upbeat IEA report, which should highlight that global inventories accumulated over 1H20 have now largely been run down. High-frequency data has indicated a whopping 75 mln bbl global crude stock draw in June alone, for a rate of 2.5 mln bpd. In the US, strong crude draws over the past seven weeks have taken crude stocks 12 mln bbl below the 2015-19 five-year average as of last week. The crude oil market is looking at a 3 mln bpd deficit for August, even as downside risks to Asian demand are increasing due to the worsening coronavirus situation. Even if summer demand underperforms, the gap between demand and supply seems too wide for the oil market to turn bearish this summer. Thus, for OPEC+ the near-term risks look firmly tilted toward the market overheating. Once traders focus more on the inventory draws rather than disagreements within OPEC+, we think oil prices and calendar spreads will head higher again.We note that headwinds for oil today could come from the US CPI release, a high inflation reading likely to be taken as indicating a quicker tightening of Fed monetary policy. Current support for Brent is $74.20/bbl. In our view, the risks are generally skewed toward higher inflation, and high oil prices are a major driver. (As we wrote yesterday, we see US CPI growth holding in a 4.50-5.00% range through year-end before declining next year.) Note that last week, the biggest risk-off move (which happened during the OPEC+ meeting) came after US Treasury yields slid and the yield curve flattened, even though there was no discernible shift in the growth or inflation outlooks. LD HOLDS STEADY AHEAD OF US INFLATION DATAGold traded sideways within a $1,790-1,810/oz range yesterday while the 10y US Treasury yield consolidated near 1.36%, limiting bullion's movements. EUR/USD edged down from 1.187 to 1.186, creating a headwind for gold. The US 10y Treasury bond auction was priced at 1.37% and failed to affect gold yesterday, as demand for the securities was lower than at the previous auction. Minneapolis Fed President Neel Kashkari indicated that inflation is transitory and the main target should be the labor market, because it affects inflation. This is a positive signal for gold while the US recovery is flagging, though we note that Kashkari is not an FOMC voting member this year. New York Fed President John Williams signaled that when tapering QE, no priority should be given to scaling back mortgage-backed securities faster than Treasuries. The Fed's QE program involves the purchase of $80 bln of Treasuries and $40 bln of MBS per month. Bullion is near $1,810/oz as we write. Today the market awaits the US CPI and NFIB small business optimism index for June. US inflation is expected to reach 0.5% in m-o-m terms and 4.9% y-o-y. Such numbers would represent a slight softening from the figures of 0.6% m-o-m and 5% y-o-y registered in May but would still be significantly above the Fed's target and could create headwinds for gold before Fed Chairman Jerome Powell's testimony before the US Congress tomorrow. On the back of a high inflation reading, we expect bullion to retest support at $1,790/oz today, while a rise to resistance at $1,820/oz seems