Commodities Daily - July 22, 2021

> Oil prices surge amid broader rally in risk assets and drop in US gasoline and distillate inventories. This morning, Brent eased below $72/bbl amid reports that China has been supplying crude from its strategic reserves to local refiners in a bid to cool prices. Investors today will eye the ECB rate decision, US weekly jobless claims and eurozone consumer confidence data for July. In our view, given that global risk sentiment remains supportive, Brent is likely to resume yesterday's climb toward $72.4/bbl thanks to the upbeat physical market fundamentals.> Gold retreats amid a rise in US Treasury yields. Gold edged down from $1,810/oz to 1,805/oz yesterday as the 10y Treasury yield rose from 1.22% to 1.30%. Bullion is trading near $1,800/oz as we write. Today, markets await an ECB interest rate decision, the US leading indicators index and existing home sales, the Chicago Fed national activity index for June, US initial jobless claims and eurozone consumer confidence for July. We expect gold to retest support at the 100d MA of $1,795/oz, which if passed would pave the way to $1,790/oz.OIL PRICES SURGE AMID BROADER RALLY IN RISK ASSETS AND DROP IN US GASOLINE AND DISTILLATE INVENTORIESAt the start of the day yesterday, Brent began to generate positive momentum, rising from the $68.6/bbl mark as European stock markets moved sharply higher, recovering from a tough few sessions, which made it seem like Monday's sudden selloff in global risk assets may have been something of a chance occurrence that produced excitement but will have little lasting impact. Oil prices also received support from a drop in the dollar, which was hit by waning safe-haven demand and pulled back from a more than three-month high as risk appetite re-emerged to push stocks higher. Nonetheless, investors remained somewhat cautious amid the inflation fears and concerns about the new highly contagious coronavirus variant. The Delta variant has continued to rip through Asia, spurring a flurry of renewed curbs by governments to check its spread. In Southeast Asia, Indonesia (the region's largest economy) has imposed a patchwork of restrictions across the sprawling country following a record daily death toll. Meanwhile, in the US, Texas reported the most confirmed infections in more than three months.Ahead of yesterday's EIA inventory report, Brent was trading near $71.3/bbl, supported by a surge in the S&P 500 toward its biggest two-day gain in two months on a slew of upbeat earnings reports that took the focus off the concerns about the potential economic impact of the coronavirus flare-ups. The EIA reported a 2.1 mln bbl build in US crude oil stocks to 439.7 mln bbl last week, the first build since May, amid higher imports and lower exports and refinery inputs. However, crude oil inventories at the Cushing depot in Oklahoma fell to the lowest level since January 2020. As we noted yesterday, we still expect total crude oil inventories in the US to shrink over 3Q21.After an unseasonal build in gasoline stocks over the July 4 week, inventories fell 0.12 mln bbl last week, as demand rose to 9.3 mln bpd, offsetting a rise in imports to the highest level since 2011. Distillate stockpiles also declined, shrinking by 1.35 mln bbl in defiance of seasonal trends. Total oil product demand on a rolling four-week average basis came down a bit, but still stood at a very healthy 20.6 mln bpd, just shy of where we were in the same week of 2019. Following the report, Brent rallied toward $72.4/bbl, brushing aside the few negatives in the data amid much improved risk sentiment. Front-month Brent eventually settled at $72.23/bbl, $2.88/bbl above the previous settlement.This morning, Brent has eased below $72/bbl amid reports that China has started releasing sour crude from its Strategic Petroleum Reserve, with more than 20 mln bbl set to be delivered to majors as the government looks to tame rising refined product prices and rein in inflation. This will help Chinese majors avoid running short of crude, as they have been drawing down stockpiles since 4Q20, and it should also provide a boost to post-turnaround refinery runs. Investors today will eye the ECB rate decision, US weekly jobless claims and eurozone consumer confidence data for July. In our view, given that global risk sentiment remains supportive, Brent is likely to resume yesterday's climb toward $72.4/bbl thanks to the upbeat physical market LD RETREATS AMID A RISE IN US TREASURY YIELDSGold declined from $1,810/oz to $1,805/oz yesterday as the 10y Treasury yield climbed from 1.22% to 1.30%. EUR/USD edged up from 1.178 to 1.179. The auction for $24 bln of 20y US Treasury bonds found limited interest and put pressure on bullion, which also found no support from yesterday's macroeconomic releases. US equities gained for a second day in a row following Monday's sharp correction. This could indicate that concerns over an economic recession on the back of rising coronavirus cases worldwide are petering out. Investor interest in risk assets was on the rise, pressuring bullion, which has been benefiting from any signs that the US economic recovery is slowing. Gold is trading near $1,800/oz as we write. Today, markets await an ECB interest rate decision, the US leading indicators index and existing home sales, the Chicago Fed national activity index for June, US initial jobless claims and eurozone consumer confidence for July. We expect the ECB to keep rates on hold and monetary policy unchanged at today's meeting. However, we expect it to provide more information on the recent changes to its inflation targeting policy. The bank recently raised its inflation target and said it could let inflation overshoot for a while. While the ECB could create tailwinds for gold, the US is likely to provide positive signals on the economy, with the consensus expecting a decrease in the weekly jobless claims figures to 350k, a 0.8% gain in the leading indicators index and a 1.7% rise in existing home sales. In light of this, we expect gold to retest support at the 100d MA of $1,795/oz, which if passed would pave the way to $1,790/