Commodities Daily - July 19, 2021

> Oil comes under pressure after OPEC+ agrees to extend production boost into 2022. Brent is trading below $73/bbl as we write after OPEC+ over the weekend agreed to add 0.4 mln bpd of production per month from August until 2022, when all its halted output should be revived. The deal also gives Saudi Arabia, the UAE, Iraq, Kuwait and Russia higher production baselines starting from May 2022 against which their cuts will be measured. There are no important macro releases scheduled for today, so investors will be digesting the impact of the renewed OPEC+ deal on the global oil market amid growing concerns about the Delta variant. We expect Brent to continue trading around $73/bbl today.> Gold prices drop amid positive US data. Gold declined from $1,830/oz to $1,810/oz on Friday, while the 10y US Treasury yield was steady at 1.29%. Friday's retail sales report from the US was upbeat, thus weighing on gold prices. Bullion is quoted near $1,810/oz as we write. Today, markets await the US NAHB housing market index and eurozone construction data. We expect gold to be range-bound at $1,800-1,820/oz today.OIL COMES UNDER PRESSURE AFTER OPEC+ AGREES TO EXTEND PRODUCTION BOOST INTO 2022On Friday, Brent mainly stuck within a $73-74/bbl range though briefly slid to as low as $72.3/bbl as the rapidly spreading Delta variant is triggering renewed restrictions on movements as it sweeps across the globe, with Singapore shutting hundreds of nightlife venues and Los Angeles County reinstating the mask mandate. Brent eventually settled at $73.59/bbl, up $0.12/bbl on the day.Brent is hovering below $73/bbl as we write after OPEC+ met over the weekend and agreed to raise production in the coming months and to extend the current deal. From August through to April 2022, the group will boost output by 0.4 mln bpd per month, with the increments rising to 0.43 mln bpd from May 2022. The monthly increases will continue through 2022 until OPEC+ has unwound 5.76 mln bpd of cuts, which would take until September 2022 if all goes to plan. The deal remains flexible, and the alliance will continue to hold talks every month from September 1, including a large review of the market in December 2021. The Saudi energy minister said OPEC+ can adjust the schedule if required, and we consider it important that the group will keep meeting monthly to decide whether the market conditions warrant each rise, particularly in light of continuing uncertainty over Iran's return. It is for this reason the group has agreed to extend the lifetime of the production deal through to end-2022.Five countries will receive higher production baselines starting from May 2022 (the level against which their cuts will be measured): the UAE, Iraq, Kuwait, Saudi Arabia and Russia. While these baselines affect the distribution of the monthly quota increases after May 2022, we do not believe they will involve a sudden jump in actual production, either now or from next May, due to the structure of the deal. Should the market initially fixate on the baseline changes, particularly the rises for Saudi Arabia and Russia (0.5 mln bpd each), we could see a selloff, especially as the market is already in risk-off mode and could be prone to confusing headlines in the coming days. The baseline changes are essentially a political device to recognize a core group (Saudi Arabia, Russia, UAE, Iraq and Kuwait) that is restraining production notably below its production capacity. Indeed, OPEC+ will still only bring back 5.76 mln bpd to the market by the end of the deal, not the full 7.39 mln bpd implied by the higher baselines. We see the group's planned increase in supply as moderate, and it would keep the market in deficit this year. Furthermore, not all countries will be able to raise production next year due to a loss of productive capacity.Today's schedule offers no important macro releases, so investors will be left to digest the impact of the renewed OPEC+ deal on the global oil market amid growing concerns about the Delta variant. We expect Brent to continue trading around $73/bbl LD PRICES DROP AMID POSITIVE US DATAGold declined from $1,830/oz to $1,810/oz on Friday, while the 10y US Treasury yield was steady at 1.29%. EUR/USD consolidated at 1.181, which constrained gold's decline. Friday's US macro data was mostly negative for gold prices. Retail sales increased 0.6% m-o-m in June versus an expected 0.3% decrease following the drop in May. The rise in retail sales was broad-based, with growth across all the main gauges, including ex-autos (1.3%), ex-autos and gas (1.1%), and ex-food (0.3%). This data pushed gold prices lower, as it indicated that the US economic recovery is accelerating. Meanwhile, the University of Michigan's consumer sentiment index fell to 80.8 in July, well below the expected 86.5, while 1y inflation expectations rose sharply to 4.8%, above the expected 4.3%. This data also created headwinds for gold, as it further fueled concerns about Fed policy tightening. We also note that the final CPI readings for the eurozone were in line with expectations at 1.9% y-o-y and 0.3% m-o-m.Gold is trading near $1,810/oz as we write. Today, the market awaits the July reading of the US NAHB housing market index and May construction output data from the eurozone. The main events later this week include the ECB meeting on Thursday, July consumer confidence from the eurozone, Markit PMI readings from a range of DMs, and US data including building permits, housing starts and existing home sales for June, as well as the weekly jobless claims figures. We expect gold to remain in a $1,800-1,820/oz corridor