Commodities Daily - July 21, 2021

> Oil prices stabilize ahead of EIA inventory report. Today the oil market awaits EIA inventory data that could confirm the first crude oil stock build since May, though the Bloomberg consensus is suggesting a draw of around 4.5 mln bbl. We believe the EIA is unlikely to replicate the API's reported crude oil inventory build, which should push Brent back toward $70/bbl, though stronger gains are unlikely as a likely gasoline inventory increase could provide headwinds.> Gold steady despite dollar strengthening. Gold traded sideways in a range of $1,805-1,825/oz yesterday as EUR/USD slid from 1.180 to 1.178. Yesterday's US economic data was mixed, while new daily Covid cases in the US reached the highest level since mid-April. Bullion is quoted near $1,810/oz as we write. There are no important macro releases on today's agenda. We expect gold to trade in a range of $1,800-1,820/oz.OIL PRICES STABILIZE AHEAD OF EIA INVENTORY REPORTBrent steadied at around $69/bbl yesterday and was pushing toward $70/bbl into the close as broader markets rebounded from Monday's coronavirus-driven selloff that saw oil prices tumble to an eight-week low. Brent eventually settled $0.73/bbl higher on the day at $69.35/bbl. Crude's plunge on Monday also put the global benchmark under technical pressure, with Brent slipping below its 100d MA for the first time since November and below its 50d MA for the first time since May. Such moves can often spark additional selling from trend-following funds. However, currently low crude inventories should cap any downside. OECD oil and refined product stocks were 10.8 mln bbl below the 2015-19 average in May, and preliminary June data for the US, Europe and Japan shows that stocks fell by another 22 mln bbl, widening the deficit to 26 mln bbl.Much of the draw has occurred in the US, where the mismatch between refinery inputs and crude production has resulted in substantial inventory draws from commercial crude inventories. Since the beginning of April, US commercial crude oil stocks have fallen by 60 mln bbl even as more than 16.5 mln bbl of additional crude from the strategic petroleum reserve has hit the market. US commercial crude oil inventories have already returned to early February 2020 levels and we expect further draws of nearly 40 mln bbl over 3Q21. To avoid the oil market overheating, OPEC+ has established a roadmap to gradually raise output and is set to start gradually unwinding 5.76 mln bpd of production cuts from August, with the option to pause if and when Iran actually ramps up. We may still not have clarity on Iran's return when OPEC+ next meets on September 1. This very gradual supply hike comes with the inventory overhang all but gone and the oil market looking at what is likely one of the tightest summers in history, meaning that oil prices and calendar spreads are unlikely to remain under pressure from external macro factors (i.e. global market selloffs) for very long. We therefore expect calendar spreads to remain backwardated, reflecting fundamental market strength. However, given that the summer holidays are upon us, paper mart liquidity will likely dry up for the next few weeks at least. So going extremely long here amid low open interest could be risky for some. Prices and calendar spreads could remain under pressure and at best move sideways for the next few weeks, but the ultimate trajectory is for prices to rise. This morning, for example, Brent is under pressure and is back trading around $69/bbl after the API overnight reported a slight and a surprising 0.8 mln bbl build in US crude oil stocks, a stronger build in gasoline stocks (+3.3 mln bbl) and a draw in distillates (-1.2 mln bbl). Today the oil market awaits EIA inventory data that could confirm the first crude oil stock build since May, though the Bloomberg consensus is suggesting a draw of around 4.5 mln bbl. We believe the EIA is unlikely to replicate the API's reported crude oil inventory build, which should push Brent back toward $70/bbl, though stronger gains are unlikely as a likely gasoline inventory increase could provide LD STEADY DESPITE DOLLAR STRENGTHENINGGold rose from $1,810 to $1,820/oz during the course of yesterday's trading. It attempted to consolidate there but failed to do so and eventually slipped back to close virtually flat on the day around $1,810/oz. Among the headwinds for gold prices yesterday were a decline in EUR/USD from 1.180 to 1.178 and an uptick in the 10y US Treasury yield from 1.19% to 1.22%. Yesterday's US housing market data was mixed. Housing starts in June were above consensus, up 6.3% m-o-m versus an expected 1.2% increase, while building permits fell 5.1% versus an expected 0.7% rise. This ambiguous batch of data had little effect on the gold market yesterday. Meanwhile, the continued spread of the Delta variant saw new daily cases top 60k in the US, 45k in the UK and 535k worldwide. The resurgence of Covid-19 in key economies has caused money market derivatives traders to revisit their projections for Fed policy, and they now expect the first rate hike to come in March 2023 versus January previously. However, the pandemic-driven correction on Monday came to a halt yesterday, as the S&P 500 and Dow Jones Industrial Average both advanced. The positive mood in stock markets weighed on gold early in the US session, which saw rising interest in the dollar and selling in US Treasuries (with a rebound in the 10y yield). Gold is trading near $1,810/oz as we write. There is nothing notable on the global macro agenda today, so markets will likely move on local news flow. Unless things change, we expect gold to trade sideways within a range of $1,800-1,820/oz. In fact, we see a break out of this range in either direction as