Commodities Daily - June 16, 2020

> Oil prices rebound on upbeat supply-side factors and stock market recovery. From the macro side, today investors will focus on Fed Chairman Jerome Powell's speech to the US Senate Banking Committee. US retail sales and industrial production will also garner attention. The focus for the oil market is on the monthly IEA report (to be followed by OPEC's monthly report tomorrow), which is being released as we write. The continuing uptrend in risk sentiment and oil prices could push Brent into the $41.0-41.9/bbl technical range in the near term, which in our view, is more likely than a retreat to a $38.5/bbl technical support level.> Gold supported by Fed moves. The market was volatile early yesterday, but gold has gone on to erase all of the early losses. It is now quoted around $1,730/oz, and today we expect consolidation in a range of $1,720-1,740/oz. At 17:00 Moscow time, Fed Chairman Jerome Powell will speak in front of the Senate Banking Committee. Meanwhile, a number of US and European macro releases for May are due as well.OIL PRICES REBOUND ON UPBEAT SUPPLY-SIDE FACTORS AND STOCK MARKET RECOVERYAfter sliding to an intraday low of $37.2/bbl early yesterday, front-month Brent began to pick up momentum and surged toward the $40/bbl mark by the end of the day, eventually settling at $39.72/bbl, fixing $0.99/bbl above the previous settlement. The largest gains were registered during US trading. Among upbeat supply-side factors we highlight a comment by the energy minister of the UEA, who expressed confidence that the OPEC+ countries that have shown poor compliance with the mandated cuts would meet their commitments. He also said that, barring another wave of Covid-19, he thinks that demand will recover at a pace that is adequate to the cuts. Speaking of the progress of non-compliant countries toward meeting their obligations, Iraq's Oil Marketing Company (SOMO) has notified customers in Asia that less Basra crude will be loaded in July. Undisclosed sources told news agencies that the overall amount of Basra crude supply for July is estimated to fall by 15-20% on average from the previous plan of exporting 2.8 mln bpd from southern ports in June. Furthermore, several sources told Reuters that Saudi Aramco has reduced the volume of crude that it will supply to at least five buyers in Asia in July (the cuts were mainly for medium and heavy grades). This comes despite Saudi Arabia having recently pledged to end its deeper, voluntary cuts amid signs of recovering global demand. Investors were also encouraged by yesterday's upbeat EIA drilling productivity report, which contained a forecast that US tight oil output would continue to drop: the agency expects a 0.093 mln bpd m-o-m decrease in July to 7.632 mln bpd. On the matter of global demand and supply, Energy Aspects yesterday highlighted that oil supplies were currently running below demand and that this gap would balloon out to almost 5 mln bpd starting in July, unlike in April when supplies exceeded demand by 16.6 mln bpd. In our most recent Oil Price Fundamentals report, we highlighted that investors are now well aware that without a sustained recovery in demand for refined products, the crude market will remain fragile, and this is why fears of a second wave of the coronavirus (confirmed cases globally have reached over 8 mln, as Latin America and other regions of the US are the new hot spots, while China is grappling with a fresh outbreak) have recently turned the tide on risk assets and crude has followed in a long overdue correction.Later in the day yesterday, the US countered the downtrend in stock markets with a 0.8% gain on the S&P 500 and a 1.4% climb on the NASDAQ Composite. This boosted oil prices. Drivers for the US risk asset rally included the Fed's announcement that, starting today, it would start purchasing individual corporate bond issues rather than only ETFs. Reports that the US administration may be considering a proposal for $1 trln in new infrastructure spending also propped up markets. From the macro side, today investors will focus on Fed Chairman Jerome Powell's speech to the US Senate Banking Committee. US retail sales and industrial production will also garner attention. The focus for the oil market is on the monthly IEA report (to be followed by OPEC's monthly report tomorrow), which is being released as we write. The continuing uptrend in risk sentiment and oil prices could push Brent into the $41.0-41.9/bbl technical range in the near term, which in our view, is more likely than a retreat to a $38.5/bbl technical support LD SUPPORTED BY FED MOVESThe gold market was volatile yesterday, with the gold price dropping to as low as $1,704/oz during the Asian and European sessions. However, the US session triggered a turnaround, supported by economic data and Fed actions.The Empire State manufacturing index was reported at minus 0.2 points yesterday, the highest reading in four months and a big improvement over the last reading of minus 48.5. Meanwhile, Fed officials continued to make dovish comments. Dallas Fed President Robert Kaplan said he expected disinflationary indicators to prevail over the next two years and voiced skepticism about the notion of the Fed taking up yield-curve control. In the evening (Moscow time), the Fed announced that it would start buying corporate bonds in the secondary market under its SMCCF program, which supported markets and allowed gold to advance quickly. It is now quoted around $1,730/oz, having erased all of yesterday's early losses.Today, we expect the gold price to consolidate in a range of $1,720-1,740/oz. At 17:00 Moscow time, Fed Chairman Jerome Powell will speak in front of the Senate Banking Committee. There are a number of US and European macro releases as well, with the focus on US retail sales for May (15:30) and US industrial production for May (16:15)