Commodities Daily - June 10, 2020

> Oil stabilizes amid EIA monthly report; EIA inventories in focus today. We expect the EIA's weekly inventory update to again paint a rather bearish picture today, with a crude stock build of 4-5 mln bbl amid elevated imports and low exports. We also expect it to show yet another build in total oil and refined product inventories. The net result could be a correction in Brent toward technical support at $39.8/bbl. Also due today is the OECD's latest World Economic Outlook, US inflation and the Fed meeting results.> Gold continues rising ahead of Fed meeting. Yesterday, gold rose 1%, and the morning it has been trading at $1,716-1,719. At 15:30 Moscow time today, the US CPI for May will be reported. Then at 21:00 the Fed decision will be announced, followed by Chairman Jerome Powell's press conference at 21:30. In their meeting preview, our FX strategists laid out their expectations that the Fed could comment on potential yield curve control. Should these expectations turn out correct, we believe gold prices would get a boost today. We think gold has the potential to break out of its usual $1,700-1,720/oz range and test technical resistance at $1,765.OIL STABILIZES AMID EIA MONTHLY REPORT; EIA INVENTORIES IN FOCUS TODAYAfter trading around $41/bbl at the start of the day yesterday, front-month Brent began to slide amid a sharp move downward in global stock markets after trading in Europe kicked off. European shares suffered sharp losses, bringing the recent rally to an end. Investors are now waiting for the results from today's FOMC meeting, including an update on how the economic recovery is faring. Brent sank to an intraday low of $39.85/bbl midday yesterday, but then quickly rebounded back above $40/bbl and went on to pare all of its earlier losses in the second half of the day. It eventually settled at $41.18/bbl, fixing $0.38/bbl above the previous settlement. One supportive factor was the news flow from Libya, where the National Oil Corporation declared force majeure on some exports from the country's Sharara oilfield after production was briefly halted by an armed group. This comes just days after the resumption of output following a blockade that had lasted months.Later yesterday, the EIA's monthly oil market outlook was rather upbeat, providing a tailwind for oil prices. It suggested that US crude production this year will fall by 0.67 mln bpd y-o-y (last month, it forecast a 0.54 mln bpd decrease) to average just 11.56 mln bpd (versus last month's forecast of 11.69 mln bpd and the most recent data showing output of 12.716 mln bpd in March). The agency expects US crude output to gradually fall to a low this year of 10.7 mln bpd in December. For 2021, it sees US oil output averaging 10.84 mln bpd, down 0.72 mln bpd y-o-y, with production gradually recovering from 10.6 mln bpd in March to 11.1 mln bpd in December. The EIA also lowered its 2020 global demand forecast, albeit slightly, now expecting a 8.34 mln bpd y-o-y drop to 92.53 mln bpd (versus the 8.13 mln bpd drop it forecast last month), with global consumption seen rising to almost 98 mln bpd in December from 79.15 mln bpd in April. The statement was rather upbeat, indicating that initial data shows that the global oil market is rebalancing faster than the EIA had previously forecast.Overnight, the API reported that US crude stocks surged 8.4 mln bbl to 539.4 mln bbl last week (the EIA's latest report put them at 532.3 mln bbl). The stock build came amid a 0.1 mln bpd increase in imports and despite a 0.39 mln bpd decrease in refinery runs. Crude stocks at the Cushing, Oklahoma delivery hub surprisingly fell by 2.3 mln bbl. The refined product data was mixed, showing a 2.9 mln bbl draw in gasoline stocks and a strong 4.3 mln bbl increase in distillate inventories. Investors are now positioning themselves for the EIA inventory report today at 17:30 Moscow time. The Bloomberg consensus is calling for a 1.85 mln bbl crude stock draw, a 1 mln bbl decrease in gasoline inventories and a 3.5 mln bbl gain in distillate stocks. The downbeat API data weighed on oil prices overnight, and Brent is trading near $40.5/bbl as we write. We expect the EIA's weekly inventory data to again paint a rather bearish picture today, with a crude stock build of 4-5 mln bbl amid elevated imports and low exports. We also expect it to show yet another build in total oil and refined product inventories. The net result could be a correction in Brent toward technical support at $39.8/bbl. Also due today is the OECD's latest World Economic Outlook, US inflation and the Fed meeting LD CONTINUES RISING AHEAD OF FED MEETINGYesterday, gold rose 1%, and this morning it has been trading at $1,716-1,719/oz. Markets were focused yesterday on a reading of the US NFIB small business optimism index, which rebounded to 94.4 points in May, beating the consensus of 92.0. At 15:30 Moscow time today, the US CPI for May will be reported. It is expected to reflect higher energy prices and the relaxation of lockdowns in certain states.However, the Fed decision and Chairman Jerome Powell's press conference will take up most of the attention. In their meeting preview, our FX strategists laid out their expectations that a target for long-term US Treasury yields could be set, purchases of long-term paper under the Fed's QE program would be expanded, and the Fed could change its outlook on where rates will be in the long term. Should these expectations turn out correct, we believe gold prices could get a medium-term (lasting 1.0-1.5 years) fundamental boost, as long-term lower rates should mean more investment interest in gold. We think that today gold has the potential to break out of its usual $1,700-1,720/oz range and test technical resistance at $1,