Commodities Daily - July 14, 2020

> Oil and stocks fall as virus fears, US-China tensions rise; OPEC report eyed. This morning, after the release of upbeat data on China's oil imports in June, Brent is attempting to pare earlier losses and move back above $42/bbl. Investors will eye the OPEC monthly oil market report, which will also be examined by the OPEC+ technical committee today ahead of the OPEC+ JMMC video conference tomorrow. OPEC+ is widely expected to agree to start increasing production in August, in line with the terms of the current production cut deal. We see the risks for oil prices this week as tilted to the downside and expect Brent to test technical support at $41.5/bbl today. We note that the next resistance level is $42.4/bbl, and a break above could lead to consolidation within a $42.7-43.3/bbl range.> After surging last week, gold prices taking a pause. Gold prices were mostly unchanged yesterday (up 0.2%), having consolidated in a range of $1,795-1,810/oz. Today, investors will be looking out for EU industrial output (12:00 Moscow time), US inflation for June (15:30) and 2Q20 earnings from leading US banks. Despite the fact that demand for defensive assets looks set to remain strong, new catalysts will likely be needed to propel gold higher. Today, meanwhile, we think gold will hold in the $1,800-1,820/oz range.OIL AND STOCKS FALL AS VIRUS FEARS, US-CHINA TENSIONS RISE; OPEC REPORT EYEDDuring the first half of the day yesterday, Brent was trading within a $42.4-43.3/bbl range. It shifted toward the upper end of this corridor in the early US trading hours. Later in the day, however, it started to tumble alongside major stock market indexes after the governor of California ordered bars, restaurants, movie theaters, zoos and museums in the state to cease all indoor operations amid a surge in coronavirus cases and hospitalizations. Furthermore, the WHO reported more than 230k new coronavirus cases globally on Sunday, a record high. Most of the growth was attributable to the US and Latin America. Also providing headwinds for risk assets have been escalating disputes between the US and Europe and China. Meanwhile, yesterday's EIA drilling productivity report included a forecast that US tight oil output would continue to drop, although at a slower pace: the agency expects a 0.056 mln bpd m-o-m decrease in August to 7.49 mln bpd. Last month, it expected tight oil production to drop 0.093 mln bpd m-o-m in July.This morning, after the release of upbeat data on China's oil imports in June, Brent is attempting to pare earlier losses and move back above $42/bbl. China imported 12.9 mln bpd of oil in June, which beat the previous record of 11.3 mln bpd recorded in May and was up a whopping 3.27 mln bpd y-o-y. This put imports in 1H20 at 10.78 mln bpd, which is almost 10% higher than the 1H19 level. The surge in Chinese imports early this year has been attributed mainly to bargain-hunting by Chinese refiners. Today, investors will eye the OPEC monthly oil market report, which will also be examined by the OPEC+ technical committee today ahead of the OPEC+ JMMC video conference tomorrow. OPEC+ is widely expected to agree to start increasing production in August, in line with the terms of the current production cut deal. We believe this would provide headwinds for oil this week. Yesterday's comments by OPEC's secretary general that the latest "supply and demand trends are helping bring us step by step closer to achieving a balanced market" also, in our view, suggest that an increase in OPEC+ production from the July level is indeed in the cards.All in all, we see the risks for oil prices this week as skewed to the downside and expect Brent to test technical support at $41.5/bbl today. We note that the next resistance level is $42.4/bbl and that a break above could lead to consolidation within a $42.7-43.3/bbl range. We also highlight that a pickup in global risk-off trading coupled with a downbeat OPEC+ decision and downbeat US oil and refined product stockpile data (which we see as likely; the API report will be released overnight) could even push Brent to a test of $40/bbl, though we would not expect to see a drop below technical support at $37.3/bbl in TER SURGING LAST WEEK, GOLD PRICES TAKING A PAUSEYesterday was a fairly volatile day in stock markets. After posting gains early on, stocks later came under pressure following news that some lockdown measures were being re-imposed in California (restaurants, bars and entertainment facilities). Gold prices, however, did not succumb to the volatility and traded within a range of $1,795-1,810/oz. Bullion ended up closing just 0.2% higher on the day. Strong demand from ETFs for physical gold remains in place. According to Bloomberg ETF purchases have grown for 12 consecutive days, with aggregate holdings now exceeding 104.5 moz. Today, investors will be looking out for EU industrial output (12:00 Moscow time), US inflation for June (15:30) and 2Q20 earnings from leading US banks. Despite the fact that demand for defensive assets looks set to remain strong, new catalysts will likely be needed to propel gold higher. Today, meanwhile, we think gold will trade in the $1,800-1,820/oz range.