Commodities Daily - July 15, 2020

> Oil ticks higher ahead of JMMC meeting and EIA inventory report. Following an upbeat API print overnight we expect the EIA to show a strong drawdown in gasoline stocks and strong decrease in crude oil stocks. This could mean that we will see the first substantial draw in total oil and refined product inventories since early March. We think this could be sufficient for Brent to test its next resistance level at $43.8/bbl, although we think Brent is unlikely to push toward the $45/bbl mark today given the headwinds from the forthcoming OPEC+ JMMC decision to start increasing production in August. However, the downside from this will be limited given that an OPEC+ technical committee that met online yesterday outlined plans for countries such as Iraq, Nigeria and Kazakhstan to make an additional 0.84 mln bpd of cuts over the next couple of months to offset their undercompliance in May and June. This 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.> Gold prices climb 0.4% to $1,809/oz yesterday. Markets yesterday were driven by news flow, including the reports about the successful trial of Moderna's Covid-19 vaccine. The highlights today data-wise are the Empire State manufacturing index, industrial production and the Fed Beige Book from the US.OIL TICKS HIGHER AHEAD OF JMMC MEETING AND EIA INVENTORY REPORTAfter trading within the $41.8-42.5/bbl range early in the day, front-month Brent rallied to an intraday high of $43.2/bbl during US trading, mirroring the uptrend in equities. One of the factors supporting risk sentiment is a report that Moderna Inc.'s Covid-19 vaccine produced antibodies in all patients tested in an initial trial. Yesterday, investors were digesting the monthly OPEC report, which showed an upbeat 0.13 mln bpd m-o-m upgrade to global oil demand estimates this year (now expected to average 90.72 mln bpd). Demand for OPEC crude (the so-called call on OPEC crude) for this year was raised by 0.27 mln bpd, which also comes amid a slight 0.04 mln bpd downward revision to non-OPEC supply This view also implies that OPEC+ is now in a safer position to start gradually increasing production. Brent eventually settled at $42.9/bbl, fixing $0.28/bbl above the previous settlement.Overnight, the API reported that US crude stocks plummeted 8.3 mln bbl to 531 mln bbl last week (versus the EIA's latest figure of 539.2 mln bbl). The stock draw came amid a 0.78 mln bpd decrease in imports and a 0.03 mln bpd increase in refinery runs. However, crude stocks at Cushing were up 0.55 mln bbl. The refined product data was mixed, showing a 3.6 mln bbl draw in gasoline stocks and a 3 mln bbl increase in distillate inventories. Investors are now positioning for the EIA inventory report at 17:30 Moscow time today. The Bloomberg consensus is calling for a 0.25 mln bbl crude stock build, a 1.3 mln bbl decrease in gasoline inventories and a 1.5 mln bbl gain in distillate stocks.The API data strongly hints at an upbeat EIA weekly report. We expect the EIA print to be just a fraction less bullish than the API numbers and for it to show a drawdown in crude oil stocks of 6-7 mln bbl amid higher exports and refinery runs and lower imports. A likely strong drawdown in gasoline stocks coupled with a significant decrease in crude oil stocks could even lead to what would be the first substantial draw in total oil and refined product inventories since early March. We think this could be sufficient for Brent to test its next resistance level at $43.8/bbl, although in our view Brent is unlikely to surge toward the $45/bbl mark today given the headwinds from the forthcoming OPEC+ JMMC decision to start increasing production in August. However, the downside from this will be limited given that an OPEC+ technical committee that met online yesterday outlined plans for countries such as Iraq, Nigeria and Kazakhstan to make an additional 0.84 mln bpd of cuts over the next couple of months to offset their undercompliance in May and June. This 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 LD PRICES CLIMB 0.4% TO $1,809/OZ YESTERDAYIntraday volatility in the gold market was extremely high again yesterday. Gold began to descend early on, nearly reaching $1,792/oz. However, the mood in the market dramatically improved during the US session on reports of a successful trial of a coronavirus vaccine produced by Moderna. The US inflation data for June came out at about the same time. It showed a pickup in the headline m-o-m gauge to 0.6% (slightly above the consensus estimate of 0.5%) from negative 0.1% in May. Price growth in y-o-y terms was still quite low at 1.2%. Gold prices received a boost from the inflation data, and then later from a slew of dovish comments from Fed officials. For example, Fed Board of Governors member Lael Brainard noted that it could take quite some time for the US economy to recover from the impact of Covid-19 and that "sustained" large-scale asset purchases would be needed to aid the recovery. The highlights today data-wise are the Empire State manufacturing index, industrial production (16:15 Moscow time) and the Fed Beige Book from the US. Demand for defensive assets has been holding up so far today, in part because US President Donald Trump just signed into law restrictions on a number of Chinese officials and companies involved with the Hong Kong national security bill and China has promised to retaliate. As a result, gold is currently quoted at close to $1,812/oz as we write and could push toward the $1,818/oz mark