Commodities Daily - July 7, 2020

> Oil prices slide, with EIA monthly report and API inventory data in focus. Today, the market will digest the EIA's monthly oil market report and its US oil production and global oil demand forecasts for this year and next. We think the EIA is likely to slightly raise its US oil production forecasts and lower its global demand estimates from last month amid the latest surge in the global infection rate. This morning, Brent broke below $42.7/bbl technical support, and a downbeat EIA monthly report could take it toward a bearish target at $41.8/bbl later today. Overnight, the API's US oil and refined products data will be released, which we expect to be downbeat in terms of the refined products numbers, providing additional headwinds for oil prices.> Gold firms above $1,780/oz, up 0.5% on the day. The main gains in gold came during European trading yesterday in anticipation of PMIs in the US. The CFTC report showed that hedge funds are staying well positioned in gold. Several Fed officials are scheduled to speak today. Sentiment in markets is cautious, while defensive assets remain in focus. We expect gold to consolidate in the $1,775-1,790/oz range today.OIL PRICES SLIDE, WITH EIA MONTHLY REPORT AND API INVENTORY DATA IN FOCUSFront-month Brent failed to break above technical resistance at $43.8/bbl yesterday morning and consolidated within the $43.0-43.5/bbl range. It eventually settled at $43.1/bbl, up $0.3/bbl on the day. The US ISM nonmanufacturing PMI data for June provided the main focus, rebounding much stronger than expected, with the headline index jumping to 57.1 from 45.4 in May, smashing the consensus expectation of 50.1. However, the very bullish reading failed to produce a strong risk asset rally given the recent surge in the US infection rate, which has prompted several states to scale back or pause reopenings, hitting restaurants and bars hard. This implies that the recovery across a range of consumer-facing sectors has lost significant momentum over the past week or so.Saudi Arabia has raised the prices for August oil shipments to Asia, the US and northwest Europe amid further signs of improving demand. This likely indicates that OPEC+ is looking to move to phase two of its agreed two-year deal and begin to reduce the production cuts in August. Russia's energy minister already hinted at this last week, which was unsurprising given rising demand in Russia as well as in Europe. Yesterday, Energy Aspects highlighted that because OPEC+'s policy requires members to make up for noncompliance by cutting more later, deeper cuts by Iraq, Kazakhstan, and Nigeria among others will mean that the group should be expecting a net m-o-m output increase of 1.2 mln bpd in August instead of the headline 2 mln bpd figure. We think this should not be a very strong concern for oil bulls, as even after factoring in a gradual return of Libyan output from this month, global stocks will still be drawing down by 3-4 mln bpd from August to December.Today, the market will digest the EIA's monthly oil market report and its US oil production and global oil demand forecasts for this year and next. We think the EIA is likely to slightly raise its US oil production forecasts and lower its global demand estimates from last month amid the latest surge in the global infection rate. This morning, Brent broke below $42.7/bbl technical support, and a downbeat EIA monthly report could take it toward a bearish target at $41.8/bbl later today. The mooted closure of the 0.67 mln bpd Dakota Access pipeline in the US (which connects the 1.5 mln bpd Bakken shale play in North Dakota to the Gulf Coast) could lead to US production forecasts being revised lower later this year.Overnight, the API's US oil and refined products data will be released, which we expect to be downbeat in terms of the refined products numbers, providing additional headwinds for oil prices. With the coronavirus running rampant across many southern and western US states (many of which are now reintroducing lockdown measures), the outlook for gasoline demand for July in the world's largest refined products consuming economy remains LD FIRMS ABOVE $1,780/OZ, UP 0.5% ON THE DAYYesterday, optimism prevailed in stock markets from the get-go with support coming from upbeat macro reports. The ISM US nonmanufacturing PMI reached 57.1 points in June, up from 45.4 the previous month and well above the consensus estimate of 50.2. This was actually the largest one-month jump in the index's history. The business activity ISM component surged from 41 points to 66, while new orders index also demonstrated a strong increase (from 41.9 up to 61.6 in June). The gold price added nearly $15/oz going into the US open and stayed at elevated levels close to $1,790/oz for the latter part of the day. The CFTC data for the week ending June 30 was unveiled yesterday. It showed that total long gold contracts held by hedge funds rose 8k to 213.5k, while net long positions in gold remain elevated at 180k. Demand for defensive assets remains in place among ETFs, which added 52.4k oz worth of gold yesterday. Several Fed officials are scheduled to speak today. Sentiment in markets is cautious today, while defensive assets remain in focus. We expect gold to consolidate in the $1,775-1,790/oz range