Commodities Daily - July 16, 2020

> Oil climbs as upbeat EIA data prevails over OPEC+ decision to lift production in August. The market will today digest the ECB interest rate decision, US retail sales for June and weekly initial jobless claims data. We think the ECB is unlikely to announce fresh stimulus measures today, but likely upbeat initial jobless claims data and another strong monthly increase in US retail sales (albeit smaller than in May) amid a jump in gas station sales could boost risk sentiment. Given these expectations and on the back of this morning's positive Chinese 2Q20 GDP reading and June industrial production data, we think Brent could enter the $44.1-44.70/bbl technical range today if it can first break above resistance at $43.8/bbl.> Gold stable at around $1,810/oz. Volatility in the gold market remained relatively mild yesterday amid mixed political news flow and US industrial production data that had little impact on prices. Gold closed just 0.1% higher. The ECB decision and press conference are in the spotlight today. The key data releases today are weekly jobless claims and June retail sales from the US (both due at 15:30 Moscow time).> Base metal prices under pressure despite strong industrial output print from China. Reports of a successful trial of a Covid-19 vaccine being developed by the company Moderna are offsetting the negative factor of increasing infection rates globally. As of this writing, prices on 3m forward contracts are approaching $6,350/tonne for copper, $1,670/tonne for aluminum, $13,250/tonne for nickel and $2,200/tonne for zinc. OIL CLIMBS AS UPBEAT EIA DATA PREVAILS OVER OPEC+ DECISION TO LIFT PRODUCTION IN AUGUSTFront-month Brent rose $0.5/bbl yesterday morning to $43.5/bbl, with investors awaiting developments from the OPEC+ JMMC video conference on whether the group should start gradually increasing production in August in accordance with the production cut deal terms. As widely expected, OPEC+ ministers did in fact announce that they will gradually open the taps in August. The Saudi energy minister announced that the actual cut next month will be between 8.1-8.3 mln bpd, down from 9.6 mln bpd currently (rather than the headline 7.7 mln bpd figure), as some signatories that failed to fulfill their commitments to reduce output in May and June will now have to overcomply in August and September. Following these comments, Brent dipped $0.7/bbl, hitting an intraday low of $42.7/bbl. The Russian energy minister attempted to calm the market, noting that almost all of the increased output will be taken up by the producing countries' own domestic markets, as demand is recovering. We stick to our view that the OPEC+ production increase should not be a very strong concern for oil bulls, as even after factoring in the potential return of Libyan output this month, global stocks should still be drawing down by 3-4 mln bpd from August to December. The next JMMC meeting will be on August 18.Brent was trading near $43/bbl ahead of the release of the EIA inventory report, which ended up indicating a strong 7.5 mln bbl drop in US crude stocks to 531.7 mln bbl. This came amid a 1.8 mln bpd decrease in US imports to 5.57 mln bpd and a 0.15 mln bpd increase in exports to 2.54 mln bpd. A slight 0.04 mln bpd decrease in refinery inputs to 14.3 mln bpd proved insufficient to offset the overall draw. US crude production remained steady at 11 mln bpd. Inventories at Cushing, the WTI delivery hub, rose by 0.95 mln bbl to 48.7 mln bbl. The refined product data was also bullish, showing a 3.1 mln bbl decrease in gasoline stocks (amid the recovery in demand) to 248.5 mln bbl and a 0.45 mln bbl decline in distillate inventories to 176.8 mln bbl. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) showed a first substantial decrease since early March, as we had expected, falling by 9.27 mln bbl. Brent climbed to an intraday high of $43.8/bbl following the bullish release and eventually settled at $43.79/bbl, up $0.89/bbl on the day.Brent is trading near $43.5/bbl as we write, drawing support from China's upbeat 2Q20 GDP reading (up 3.2% y-o-y, beating the 2.1% consensus) and June industrial production data (up 4.8% beating the 4.4% consensus). China's refiners processed a record high 14.08 mln bpd of oil in June, up from 13.63 mln bpd in May. Today, the market will digest the ECB interest rate decision, US retail sales for June and weekly initial jobless claims data. We think the ECB is unlikely to announce fresh stimulus measures today, but likely upbeat initial jobless claims data and another strong monthly increase in US retail sales (albeit smaller than in May) amid a jump in gas station sales could boost risk sentiment. Given these expectations and on the back of this morning's positive Chinese 2Q20 GDP reading and June industrial production data, we think Brent could enter the $44.1-44.70/bbl technical range today if it can first break above resistance at $43.8/ LD STABLE AT AROUND $1,810/OZVolatility in the gold market remained relatively mild yesterday. Gold edged up to around $1,814/oz in the first half of the day but began to decline in the lead-up to the open on Wall Street, moving to an intraday low of $1,802/oz following the release of US industrial production data that showed a 5.4% m-o-m increase in June, which was slightly better than the consensus estimate of 4.3% growth. The dip in gold prices proved short-lived, however, and within about an hour gold had moved back above the $1,810/oz mark. It eventually closed with a 0.1% gain for the day. Reports on the escalating conflict between the US and China continued to feature in headlines yesterday, including news that the White House was considering a blanket ban on entry to the US for all members of the Chinese Communist Party and their families. It was also reported that the US was weighing further visa restrictions for certain Chinese companies. The geopolitical tensions have not yet heated up to the point where they would begin to drive prices on risk assets higher, so gold has so far been fairly resilient to the news flow. Today will see another batch of noteworthy US macro data, including weekly jobless claims and June retail sales (both due at 15:30 Moscow time). The ECB will also announce a decision on rates and hold a press SE METAL PRICES UNDER PRESSURE DESPITE STRONG INDUSTRIAL OUTPUT PRINT FROM CHINAChinese macro data for June published this morning showed 4.8% y-o-y growth in industrial output, which is up from the May figure of 4.4% y-o-y growth. Output of aluminum rose 0.8% y-o-y to reach 3 mln tonnes (YTD aluminum output is up 1.7% to 17.9 mln tonnes). The market, however, took a contradictory view of the data - base metals even came under some pressure. It's entirely possible that this is due to Chinese retail sales, which remain under pressure (down 1.8% y-o-y for June), a factor that is restraining expectations of a recovery in sales of consumer goods. Base metals are currently not reacting to the reports of a positive trial of a Covid-19 vaccine being developed by the company Moderna. A vaccine allowing business activity to resume quickly would obviously boost demand for industrial metals. Even though the news on the global spread of Covid-19 has remained quite concerning, so far there have been no reports from Latin America pointing to risks of supply interruptions for copper and nickel concentrate. As we write, 3m forward contracts on copper are trading near $6,350/tonne, aluminum at around $1,670/tonne, nickel at $13,250/tonne and zinc at $2,200/tonne. It is possible we will see base metal prices begin to consolidate near the current levels following the rally that began in mid-June.