Commodities Daily - July 2, 2020

> Oil ticks higher on upbeat DM manufacturing PMIs and US oil stock data and OPEC production declines. Today's macro data will include US nonfarm payrolls and jobless claims, factory and durable goods orders, the trade balance and the Baker Hughes rig counts. We expect the data to be mixed, so we think Brent can at best retest technical resistance at $42.4/bbl today, with a break above taking it to the next resistance level at $42.9/bbl.> Gold drops 0.6% yesterday amid extremely high volatility. Yesterday morning, gold was heading toward $1,790/oz, but strong data from the US sent it tumbling $30/oz. This morning, gold was more stable, and it is trading at around $1,770/oz as we write. At 15:30 Moscow time, US labor market and jobless data are scheduled for release, while factory and durable goods orders will be published at 17:00. Should the numbers come in better than expected, we could see gold testing technical support at $1,759/oz today.OIL TICKS HIGHER ON UPBEAT DM MANUFACTURING PMIS AND US OIL STOCK DATA AND OPEC PRODUCTION DECLINESThe new front-month Brent contract for September was initially volatile yesterday morning, spiking $1/bbl to an intraday high of $42.6/bbl before retreating to an intraday low of $41/bbl. The drop was partially due to Libya's National Oil Corporation stating that it had instructed its operating companies to call employees into work to prepare for a resumption of maintenance work and output (following a six-month blockade by eastern forces in the civil war). Investors were also digesting manufacturing PMIs for a number of key economies (an important indicator of oil demand), which showed a further m-o-m improvement in June and generally beat consensus estimates. The Caixin manufacturing PMI came in at 51.2, confirming previous official data that factory activity in China expanded in June. Germany's manufacturing sector contracted at a slower pace in June than in May, with the PMI reaching 45.2, while French factory activity bounced back to growth, with the PMI reaching 52.3. The US ISM manufacturing PMI released just ahead of the EIA inventory report showed activity hitting its highest level in more than a year, with the PMI jumping to 52.6 from 43.1 in May, ending three straight months of contraction as the broader economy reopened, though rising Covid-19 infections still threaten the recovery. New infections in the US rose by nearly 50,000 on Wednesday, the biggest one-day spike since the start of the pandemic, with more than half of the new cases coming in Arizona, California, Florida and Texas.Brent was trading near $41.4/bbl in early US trading ahead of the release of the EIA inventory report, which indicated a strong drawdown in US crude stocks of 7.19 mln bbl to 533.5 mln bbl. This came amid a 0.57 mln bpd decrease in imports to 5.97 mln bpd and a 0.19 mln bpd increase in refinery inputs to 14 mln bpd. A slight 0.06 mln bpd decrease in exports was insufficient to offset the total drawdown. US crude production remained steady at 11 mln bpd. Inventories at Cushing, the WTI delivery hub, fell yet again, this time by 0.26 mln bbl to 45.58 mln bbl. The refined product data was mixed, with gasoline stocks rising 1.2 mln bbl to 256.5 mln bbl amid an increase in refining and imports. The recovery in gasoline demand faltered last week, which may reflect fears of another resurgence in infection rates in key travel hot spots such as Florida and California. Distillate stocks eased 0.6 mln bbl to 174.1 mln bbl. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) were up 1.1 mln bbl, largely due to an increase in the jet fuel, propane/propylene and "other oils" categories. Brent gained around $0.8/bbl following the release and eventually settled at $42.03/bbl, up $0.76/bbl on the day.Another upbeat factor yesterday was a reported 1.9 mln bpd drop in OPEC production in June to 22.62 mln bpd, the lowest level since the Gulf War in 1991. CDU TEK estimates that Russian oil and condensate production reached 9.32 mln bpd in June, meaning that if condensate production stayed the same as in May, then crude production was 8.52 mln bpd, versus the 8.5 mln bpd target for May, June and July. IHS Markit estimated that crude held on tankers fell below 150 mln bbl at the end of June, down from more than 180 mln bbl in late April, as the Brent futures contango has narrowed with rising demand, reducing the incentive to store fuel. Today's macro data will include US nonfarm payrolls and jobless claims, factory and durable goods orders, the trade balance and the Baker Hughes rig counts. We expect the data to be mixed, so we think Brent can at best retest technical resistance at $42.4/bbl today, with a break above taking it to the next resistance level at $42.9/ LD DROPS 0.6% YESTERDAY AMID EXTREMELY HIGH VOLATILITYThe markets have exhibited extreme caution since the start of the week, and defensive assets have seen elevated demand. This has helped gold to rise sharply, and it even approached the $1,790/oz mark yesterday morning. However, further gains were curtailed by two factors.First, US data indicated a rapid recovery following the lockdown. Although private payrolls rose by 2.4 mln (below the consensus forecast of 2.9 mln), the data for May underwent a radical revision (from a drop of 2.8 mln to a gain of 3.1 mln). The ISM manufacturing index provided an even more pleasant surprise, improving from 43.1 to 52.6 in June, above the consensus forecast of 49.8. Immediately afterward, gold began to decline and dropped by about $30/oz to end the day 0.6% lower.Second, reports of positive early results from Pfizer's coronavirus vaccine caused the company's stock to spike and boosted risk appetite.This morning, gold was more stable, and it is trading at around $1,770/oz as we write. At 15:30 Moscow time, US labor market and jobless data are scheduled for release, while factory and durable goods orders will be published at 17:00. Should the numbers come in better than expected, we could see gold testing technical support at $1,759/oz