Commodities Daily - June 11, 2020

> Oil up after promising EIA report but later retreated amid risk-off turn in global markets. This morning, Brent is sliding toward the $40/bbl mark, with markets seemingly focusing on the dire economic warnings from the day's macro news, rather than the promises of stimulus that would further inflate asset prices. Also not helping matters was developing news flow of rising Covid-19 infection rates in parts of the US that have already ended lockdowns, raising the obvious question of how soon such a trend will appear elsewhere in the world. The current global market risk-off looks strong enough to push Brent back down toward technical support at $39.8/bbl and possibly even to the $38.4-39.8/bbl technical range later in the day.> Gold climbs to nearly $1,740/oz after Fed meeting yesterday. Gold prices remain elevated this morning, at around $1,735/oz as we write, though we believe a correction to $1,720/oz is possible if the US jobless claims figures due at 15:30 Moscow time beat optimistic market expectations. The consensus for the initial claims figure is 1.55 mln, which would be down slightly from last week's 1.88 mln.OIL UP AFTER PROMISING EIA REPORT BUT LATER RETREATED AMID RISK-OFF TURN IN GLOBAL MARKETSFront-month Brent was trading around the $40.5/bbl mark during the first half of the day yesterday amid a lack of catalysts. It was hovering slightly below this level ahead of the EIA inventory report. The report indicated a strong build in crude oil stocks of 5.72 mln bbl to 538 mln bbl. Earlier, the API had reported a much more bearish 8.4 mln bbl build to 539.4 mln bbl. The EIA's reported buildup came amid a 0.68 mln bpd increase in imports to 6.86 mln bpd and a 0.35 mln bpd decrease in exports to 2.44 mln bpd. A 0.1 mln bpd decrease in crude production to 11.1 mln bpd (which was unsurprising given the tropical storm that passed through the Gulf of Mexico) and a 0.17 mln bpd increase in refinery inputs to 13.48 mln bpd were insufficient to prevent a buildup in oil inventories. Refineries are now running the most crude since the start of April, but crude processing remains nearly 3.6 mln bpd below levels from the same time last year. Crude stocks at the Cushing WTI delivery hub in Oklahoma dropped by 2.28 mln bbl last week to 49.44 mln bbl.Meanwhile, there was a rather small 0.86 mln bbl increase in gasoline stocks to 258.6 mln bbl and a relatively small 1.57 mln bbl rise in distillate stocks to 175.8 mln bbl compared to much stronger builds seen during the previous 10 consecutive weeks of builds (also amid an uptick in demand). As the US enters the heart of summer driving season, demand continues to pick up and is now at the highest level since early April, although it is still below normal seasonal levels. Demand estimates and relatively subdued builds in the refined product category provided hope that the market could begin to rebalance in the weeks to come. Total commercial petroleum stockpiles (oil and refined products excluding strategic petroleum reserves) increased yet again, this time by 9.7 mln bbl. It is worth highlighting that that total build came amid net imports of crude and refined products climbing to their highest levels since last August. Having been a net petroleum exporter for most of this year, the balance for the US swung the other way in mid-May: amid the collapse in global oil demand, flows into the country outstripped the volumes being shipped out. A strong pickup in end-user demand will be crucial in the coming weeks for a drawdown of the massive product inventories (refineries are continuing to gradually increase production). It is key for investors not to lose faith that the market will eventually be sucessfully rebalanced even if the refined products data continues to be downbeat in the near term. If, however, confidence is shaken due to the daunting inventory overhang, Brent could move below $40/bbl.Following the EIA release, Brent began to rise toward the $41/bbl mark and subsequently to $42/bbl following the Fed meeting, which was full of both economic warnings and reassurances. The released guidance indicated that the federal funds rate would rest just above zero until the end of 2022. Front-month Brent eventually settled at $41.73/bbl, fixing $0.55/bbl above the previous settlement. This morning, Brent is sliding toward the $40/bbl mark, with markets seemingly focusing on the dire economic warnings from the day's macro news, rather than the promises of stimulus that would further inflate asset prices. Also not helping matters was developing news flow of rising Covid-19 infection rates in parts of the US that have already ended lockdowns, raising the obvious question of how soon such a trend will appear elsewhere in the world. The current global market risk-off looks strong enough to push Brent back down toward technical support at $39.8/bbl and possibly even to the $38.4-39.8/bbl technical range later in the LD CLIMBS TO NEARLY $1,740/OZ AFTER FED MEETING YESTERDAYDemand for defensive assets picked up yesterday following the publication of the statement from the FOMC meeting and Fed Chairman Jerome Powell's press conference. The rhetoric from the Fed remained dovish, with a promise that rates would be kept unchanged and an announcement that a floor had been set for the QE program ($80 bln per month in Treasury purchases and $40 bln in monthly MBS purchases). The dot plot also indicated that rates are expected to remain near zero to the end of 2022. At the press conference, Powell indicated that he had discussed other options, such as targeting long-term Treasury yields, with his colleagues on the FOMC, but that it was unclear how effective they might be. Gold shot up to $1,739/oz after the Fed meeting to finish 1.4% higher yesterday.The Fed also updated its economic forecasts yesterday. It now expects US GDP to decline 6.5% this year, with unemployment ending the year at 9.2% and inflation remaining low at close to 1%. If things play out this way, we would expect investors to become more cautious and possibly show more interest in safe-haven assets such as gold. The latest data on gold ETFs' holdings showed an increase of 186 koz (0.2%) yesterday.Gold prices remain elevated this morning, at around $1,735/oz as we write, though we believe a correction to $1,720/oz is possible if the US jobless claims figures due at 15:30 Moscow time beat optimistic market expectations. The consensus for the initial claims figure is 1.55 mln, which would be down slightly from last week's 1.88