Commodities Daily - July 30, 2020

> Oil edges higher on upbeat EIA crude inventory data, Fed dovishness. Today, the market will digest US initial jobless claims and the preliminary US GDP reading for 2Q20. The GDP data will shed light on the unprecedented rate of economic contraction and could weigh on risk sentiment, possibly amplified by the struggle between the Trump administration and congressional Democrats over a new virus-relief plan. Against this backdrop, we think Brent is more likely to retest support at $42.8/bbl than resistance at $44.1/bbl.> Gold under pressure from downbeat WGC report, recovering dollar. Yesterday, following the announcement of the Fed decision, Chairman Jerome Powell assured markets that US monetary policy would remain accommodative for some time to come. Today, the first set of 2Q20 GDP figures and weekly jobless claims are due from the US.OIL EDGES HIGHER ON UPBEAT EIA CRUDE INVENTORY DATA, FED DOVISHNESSBrent climbed $0.6/bbl to $43.8/bbl early yesterday and later consolidated near $43.6/bbl ahead of the EIA inventory report, which was one of the main focal points for oil investors yesterday. The report indicated the largest drop in crude oil stockpiles this year (down 10.61 mln bbl to 526 mln bbl). This stemmed from a 0.8 mln bpd drop in US imports to 5.15 mln bpd, a 0.4 mln bpd rise in refinery inputs to 14.6 mln bpd and a 0.22 mln bpd increase in exports to 3.21 mln bpd. US crude output remained unchanged at 11.1 mln bpd, and the drop in imports followed a surge in imports from Saudi Arabia earlier this summer. Inventories at Cushing, the WTI delivery hub, rose by 1.3 mln bbl to 51.4 mln bbl. However, the refined product data was slightly downbeat, showing gasoline stocks edging up 0.65 mln bbl to 247.4 mln bbl and distillate stocks expanding 0.5 mln bbl to 178.4 mln bbl. The recovery in gasoline demand remains stuck in a quagmire, with the four-week MA staying almost unchanged at 8.7 mln bpd, around 0.4 mln bpd below typical summer levels.Amid the large crude oil draw and a 1.4 mln bbl drop in fuel oil stocks, total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) fell by a hefty 6.5 mln bbl. Total US commercial stockpiles had been posting very strong builds since mid-March, but they stabilized in July, though demand remains too weak to ensure consistent draws across all categories, despite fairly restrained oil and refined product supplies. In our view, total stockpiles are likely to start falling in mid-August amid a pickup in demand, which should be very positive for oil prices and could help Brent to consolidate above $45/bbl. Following the release, Brent hit an intraday high of $43.95/bbl and eventually settled at $43.75/bbl, up $0.53/bbl on the day.Overnight, oil held on to those gains as the Fed reaffirmed that it will do whatever it takes to shore up the US economy in the face of the pandemic, pledging to keep interest rates near zero. The infection rate is still rising in the US, with the major motor fuel-consuming states of California, Texas and Florida reporting record daily deaths and the virus also reportedly staging a comeback in Asia. The October Brent contract, which will become the front-month gauge on Monday, is now the most active contract and is trading at a $0.4/bbl premium (the spread was near zero in mid-June) due to a strengthening contango in July. Today, the market will digest US initial jobless claims and the preliminary US GDP reading for 2Q20. The GDP data will shed light on the unprecedented rate of economic contraction and could weigh on risk sentiment, possibly amplified by the struggle between the Trump administration and congressional Democrats over a new virus-relief plan. Against this backdrop, we think Brent is more likely to retest support at $42.8/bbl than resistance at $44.1/ LD UNDER PRESSURE FROM DOWNBEAT WGC REPORT, RECOVERING DOLLARVolatility in the gold market was heightened in the second half of yesterday's trading. After hovering in a $1,940-1,960/oz range, gold surged to nearly $1,980/oz following the publication of the Fed decision, though it later slid back to $1,971/oz at the close, registering a 0.6% gain for the day. Both the FOMC's statement and Chairman Jerome Powell's comments provided encouragement to investors. The Fed left the main parameters of its monetary policy unchanged but extended its emergency lending and liquidity operations. During the press conference, Powell noted that the Fed had no plans to start purchasing stocks or to begin raising rates. He also pointed out that the reintroduced quarantine measures would drag on economic activity, and that the Fed could take additional action at some point in the near future to respond to this (quite possibly in September). Gold prices showed only a muted reaction to Powell's rhetoric. This morning, gold came under pressure amid a strengthening dollar. Also weighing on sentiment was data on the physical gold market from the World Gold Council. In its 1H20 report, the WGC revealed that total demand for gold had declined by 11% in 2Q20, including a 53% drop for jewelry, a 50% decrease in central bank purchases and an 18% drop in demand from the industrial sector. Investment demand offset some of these declines, as ETF holdings grew nearly six-fold in the second quarter. Additional support for the global balance came from the drop in supply due to quarantine measures. The global supply of gold dropped 15% in 2Q20, with output from mines in Mexico, Peru and South Africa down 10%. Today, the first set of 2Q20 GDP figures and jobless claims data (for the week ending July 25) are due from the US. Considering how weak the WGC's data on the physical market was and how high gold prices are, there is a good chance we could see some profit taking today. We expect the pressure on gold prices to intensify during the US