Commodities Daily - July 5, 2021

> Oil prices stabilize as OPEC+ supply dispute drags on. This morning, Brent is trading around $76/bbl ahead of another round of critical OPEC+ talks to break a stalemate over raising production, following the rise in tensions over the weekend between Saudi Arabia and UAE, two long-time allies. It is difficult to say whether OPEC+ will finally strike the deal today or perhaps tomorrow. In our view, the group will leave the market guessing how much oil it will get in August for at least most of the day. We think Brent is likely to continue trading around $76/bbl amid market concerns that unity among OPEC members appears to be weakening.> Gold rose amid mixed jobs data then consolidated. Gold posted slight gains to $1,785/oz on Friday while the 10y Treasury yield slid to near 1.42%. The US jobs report was a mixed bag. Bullion is near $1,785/oz as we write this morning. Today is a holiday in the US, while markets elsewhere will be awaiting eurozone Markit service PMIs for June. We think that bullion will likely stay range-bound at $1,770-1,795/oz today.OIL PRICES STABILIZE AS OPEC+ SUPPLY DISPUTE DRAGS ONOn Friday, Brent rose $1.2/bbl to $76.4/bbl after the June US jobs report showed that the US economic recovery is accelerating but that there may not be enough overheating to trigger a hawkish shift in Fed policy. The US added 850k jobs in June, the most in 10 months. This fairly robust print came after two months of disappointment, suggesting that the pace of hiring is picking up as labor supply constraints ease, including the expanded unemployment benefits (which are being lifted) as well as the concerns over the pandemic. This supports the narrative of a swift US post-pandemic oil demand recovery and is therefore fundamentally oil market-positive. Oil prices also drew support on Friday from the subsequent rally in risk assets (the S&P 500 rose for a seventh consecutive day to close at another fresh high). Still, the unemployment rate edged up to 5.9% in June, above the median estimate among economists.Last week, oil posted its sixth straight weekly gain. The standoff between OPEC+ ministers over output continues, so the negotiations are set to resume today. Friday's meeting ended without a deal on gradual monthly production increases until the end of the year, with the UAE still blocking a proposal to increase supply. The ongoing dispute leaves open the possibility of a supply deficit in the global oil market over 2H21, as no deal would mean continuing under the current terms, which do not entail production hikes. Meanwhile, the White House has become concerned about gasoline prices but believes there is enough spare oil production capacity globally, according to comments from White House Press Secretary Jen Psaki on Friday. The OPEC+ disagreement centers on how the group measures its production cuts. The UAE has refused to back a deal to raise output unless the baseline for its own curbs (the baseline for all members is the October 2018 production level, which for Russia and Saudi Arabia is 11 mln bpd) is increased (it is also refuses to back an extension of the pact beyond 1Q22 unless it is allowed to have a higher baseline for its cuts). Front-month Brent eventually settled at $75.21/bbl on Friday, $0.66/bbl above the previous settlement.This morning, Brent is trading around $76/bbl ahead of another round of critical OPEC+ talks to break the stalemate over raising production, following the rise in tensions over the weekend between Saudi Arabia and the UAE, two long-time allies. In an interview with Bloomberg Television on Sunday night, the Saudi energy minister said that "it's the whole group versus one country, which is sad to me, but this is the reality." It is difficult to say whether OPEC+ will finally strike the deal today or perhaps tomorrow. In our view, it will probably leave the market guessing how much oil it will get in August for at least most of the day. We think Brent will continue trading around $76/bbl amid market concerns that unity among OPEC members appears to be weakening.The standoff between the UAE and the rest of OPEC+ means that all bets are off as to where oil prices are headed next. If the alliance fails to reach a deal on output, this would squeeze an already tight market, potentially sending crude prices sharply higher. However, a more dramatic scenario is also in play: OPEC+ unity could break down entirely (although we think this unlikely), which could lead to a free-for-all production boost and a crash in prices given that OPEC+ now has around 5 mln bpd of spare capacity. In our view, a deal is still likely to be struck - one that would still result in a supply shortfall, thus pushing Brent toward $78/bbl this LD ROSE AMID MIXED JOBS DATA THEN CONSOLIDATEDGold posted slight gains and consolidated near $1,785/oz on Friday amid a drop in the US 10y Treasury yield from 1.47% to 1.42%, which supported bullion. EUR/USD moderately increased to 1.185. The US job report was the main focus on Friday. Nonfarm payrolls showed a significant increase to 850k, above the 700k expected by the markets. That by itself created pressure for gold prices as the labor market recovery may concern investors about sooner than expected monetary policy tightening. However, despite the strong June print and the April and May job numbers having been revised higher, the US unemployment rate increased to 5.9% (5.6% consensus), up from 5.8% in May. The reasons are that more and more people voluntarily left their jobs and are looking for a new one, while some people had misclassified themselves as "employed but absent from work" in previous reports. The higher unemployment figures lent some support for gold and helped offset the strong job figures, thus helping bullion consolidate on the day. Moreover, US factory orders for May showed 1.7% growth (1.6% consensus) and moderately pressured gold to lower levels.Bullion is hovering near $1,785/oz as we write. Today is a day off in the US owing to Independence Day, while markets elsewhere will await eurozone Markit service PMI data for June. Later on in the week, investors will eye US Markit and ISM service PMIs for June, FOMC minutes, US initial jobless claims, US wholesale inventories for May, eurozone ZEW surveys for July and the European Commission economic forecast. We think that bullion will likely stay range-bound at $1,770-1,795/oz