Commodities Daily - July 22, 2020

> Oil retreats on downbeat API inventory data and demand-side fears. Taking into account the API's inventory data yesterday, we anticipate a mixed EIA report today. We expect the EIA to report a smaller buildup in crude stocks, which would likely provide encouragement to investors. A probable strong drawdown in gasoline and distillate stocks amid subdued refinery runs and gradually improving demand could even lead to the second consecutive weekly draw in total oil and refined product inventories, although the draw would probably be fairly modest. We think this could be sufficient for Brent to revisit yesterday's high of $44.9/bbl. However, if the EIA data surprises to the downside, Brent could end up breaking below the $43.8/bbl technical support level and moving into a $42.7-43.3/bbl range later in the day, especially if global risk sentiment is weak. > Precious metals continue to rally. Gold is testing the $1,865/oz mark as we write, just 1.9% off its record high set in May 2011. Silver has passed the $22/oz mark, likely thanks to robust speculative investment demand. We reiterate our buy recommendation for gold, both in dollars and in rubles, and raise our three-month forecast in ruble terms to R145k/oz. We still expect the metal to average $1,709/oz in 2020 and $1,750/oz in 2021.> Base metal prices remain elevated. Yesterday saw the publication of monthly data on the copper, lead and zinc markets that suggested the physical supply-demand balance was stabilizing in April and May. This morning, three-month forward contracts for copper, zinc and lead were quoted at a respective $6,560/tonne, $2,240/tonne and $1,830/tonne.OIL RETREATS ON DOWNBEAT API INVENTORY DATA AND DEMAND-SIDE FEARSBrent continued to rally during the first half of the day yesterday following its positive performance in Monday's trading on Wall Street, when it gained $1/bbl. The front-month contract surged another $1.6/bbl higher to come up just short of the $45/bbl mark. Brent, which had struggled to find direction earlier this summer, finally managed to break above resistance at $43.8/bbl amid positive vaccine news and expectations of new EU and US stimulus. However, yesterday's risk asset rally started to lose steam during the US session on reports that talks over the next US stimulus bill appear to have stalled, with the Senate majority leader telling Politico that no bill is likely to pass for at least two weeks. Adding to the downbeat sentiment was Donald Trump's change in tone about the pandemic. After long pushing to reopen the US economy after the long shutdown, yesterday he indicated that the situation "will probably, unfortunately, get worse before it gets better." Brent eventually settled at $44.32/bbl, fixing $1.08/bbl above the previous settlement.Overnight, the API rather surprisingly reported that US crude stocks jumped 7.5 mln bbl to 538.5 mln bbl last week (versus the EIA's latest figure of 531.7 mln bbl). The stock build came despite a 0.82 mln bpd decrease in imports and a 0.05 mln bpd increase in refinery runs. Crude stocks at Cushing continued to build, rising by 0.7 mln bbl. The refined product data, however, was bullish, showing a 2 mln bbl draw in gasoline stocks and a 1.4 mln bbl decrease in distillate inventories. Investors are now looking ahead to today's EIA inventory report due at 17:30 Moscow time. The Bloomberg consensus is calling for a 2.2 mln bbl crude stock draw, a 1.5 mln bbl drop in gasoline inventories and a 0.5 mln bbl rise in distillate stocks. The bearish API crude stockpile data was weighing on oil prices this morning, with Brent trying to hold on above $44/bbl.Given what the API reported yesterday, we anticipate mixed EIA data today. We expect the EIA to report a smaller buildup in crude stocks, which would likely provide encouragement to investors. A probable strong drawdown in gasoline and distillate stocks amid subdued refinery runs and gradually improving demand could even lead to the second consecutive weekly draw in total oil and refined product inventories, although the draw would probably be fairly modest. We think this could be sufficient for Brent to revisit yesterday's high of $44.9/bbl. However, if the EIA data surprises to the downside, Brent could end up breaking below the $43.8/bbl technical support level and moving into a $42.7-43.3/bbl range later in the day, especially if risk sentiment in global markets is ECIOUS METALS CONTINUE TO RALLYGold made rapid gains yesterday ahead of the opening in New York, passing the $1,840/oz mark, with silver advancing toward $21/oz. This morning, investment demand from Asia pushed up both metals again, with gold testing the $1,865/oz mark and standing at $1,860/oz as we write, while silver has risen above $22.5/oz.The rally has come amid a weakening dollar and euro strength following the approval of a EUR750 bln fiscal support package for the eurozone economy. The package consists of EUR390 bln of budget transfers in the form of grants, while the remainder is in the form of soft loans. The entire program will be financed through the issuance of joint EU bonds, which will be serviced via the EU budget from pan-European tax receipts. These developments have caused the rally in safe-haven assets, which could now offer higher returns. ETF gold investments rose by 0.4% yesterday, while silver holdings climbed by 0.5%. Total ETF gold positions now stand at 105.8 moz, while total silver holdings are at 836.6 moz. Today will be low-key in terms of data, and no Fed speakers are scheduled due to the blackout period ahead of next week's Fed meeting. We expect precious metals to consolidate at lower levels, with gold holding in a $1,850-1,870/oz range and silver returning to $21/ SE METAL PRICES REMAIN ELEVATEDUpbeat risk sentiment fueled a rise in base metal prices across the board yesterday, and prices have continued to trade at elevated levels this morning. As we write, three-month forward contracts for copper, zinc and lead are quoted at a respective $6,560/tonne, $2,240/tonne and $1,830/tonne.Yesterday, the International Copper Study Group published data on the copper market in 4m20. According to its numbers, April was the first month this year to see a significant decline in copper output from Latin American countries due to Covid-19. Copper production was down 3.5% in the region as a whole and 33% in Peru. As a result of these supply issues, the global refined copper market was more or less balanced in 4m20, posting a very modest surplus of 59 kt.The statistics for 5m20 in the zinc and lead markets also point to a stabilization. According to International Lead and Zinc Study Group, the surplus in the zinc market over that period was 241 kt. This came as aggregate demand dropped 4.8% over that period whereas supply was stable. The lead market saw a small surplus of 12 kt over 5m20, while demand showed a recovery in