Commodities Daily - June 16, 2021

> Oil prices resume upward move ahead of EIA weekly inventory data. This morning, oil has extended its gains, with Brent reaching $74.5/bbl. This comes after API reported a strong US crude oil inventory draw, though also builds in gasoline and distillate stocks. Today, investors will focus primarily on the EIA's weekly inventory update, which we think is likely to be on the bullish side, pushing Brent toward $75/bbl.> Gold edges lower ahead of FOMC announcement. Gold retreated to $1,860/oz yesterday while the 10y Treasury yield held stable at 1.49%. US macro data was mixed. Retail sales for May were lower than expected, while the PPI and industrial production for May were above consensus. Bullion is hovering near $1,860/oz as we write. Today, the market will be focused on the FOMC announcement and US housing starts and building permits for May. We expect it to test support at $1,840/oz today.OIL PRICES RESUME UPWARD MOVE AHEAD OF EIA WEEKLY INVENTORY DATAYesterday, Brent rallied $1.5/bbl to $74.3/bbl as markets tracked the FT Commodities Global Summit, where major players in the physical market, such as Vitol and Glencore, expressed their views on the oil market. Most oil traders seem to believe that prices will keep increasing in the short term as more countries emerge from the pandemic. Trafigura's CEO made a rather bold call yesterday, saying that there's even a chance crude prices could hit $100/bbl given the level of supply and the underinvestment in the sector. The head of oil and gas marketing at Glencore, meanwhile, said that global demand should return to normal in 3Q22, and that crude prices may move higher amid continued vaccinations and inflationary pressures. Gunvor's CEO was even upbeat on the longer-term outlook, saying, "We will keep oil trading activities as we see strong demand for oil in the next 10 years." Vitol is more conservative, believing that demand for fossil fuels will peak and then decline as the world's largest economies pursue their goals of reducing carbon emissions. The fact that a chorus of prominent traders in the crude market said that prices will continue to rise caused prices to continue to climb yesterday, and front-month Brent eventually settled at $73.99/bbl, $1.13/bbl above the previous settlement.Brent has firmed to $74.7/bbl as we write, after API overnight reported a sizable US crude oil inventory draw (-8.54 mln bbl), though it also reported builds in gasoline (+2.85 mln bbl) and distillate stocks (+1.96 mln bbl). Today, the main focus will be the EIA weekly inventory update, which we expect to show another large crude stock draw, along with a further gasoline stock build and possibly a small build in distillate inventories as well. In the US, where shale producers have not substantially increased their crude oil output this year even as prices have marched higher, anti-Covid measures are gradually being lifted. The big developments on this front yesterday - which should support demand for oil and help drive total US inventories (crude and refined products) lower this summer - were California fully reopening its economy (the world's fifth largest) and New York lifting most of its remaining restrictions. We think that a mostly upbeat EIA report this evening could be sufficient to push Brent to $75/bbl and maybe even beyond this mark.We would also like to highlight that crude's latest upswing has come ahead of a potentially pivotal Federal Reserve policy statement later today. Although no explicit changes in policy are expected, the Fed could indicate that it has begun discussing when and how to scale back its bond purchases. This could affect the dollar and, in turn, demand for commodities, including LD EDGES LOWER AHEAD OF FOMC ANNOUNCEMENTGold eased to $1,860/oz yesterday while the 10y Treasury yield consolidated near 1.49%. EUR/USD also stayed near 1.212, creating some support for bullion. US macro data was mixed. Retail sales for May came in at -1.3%, below the -0.8% consensus. The Empire State manufacturing index for June came in at 17.4 points, below the 22.7 consensus, suggesting a slowing recovery and creating a tailwind for gold. The US PPI rose 0.8% m-o-m and 6.6% y-o-y, above the respective consensus forecasts of 0.5% and 6.2%. This pushed bullion lower as investors were concerned about the possibility of QE being reduced. US industrial production for May showed a 0.8% increase versus 0.7% growth expected. Gold is trading near $1,860/oz as we write. Today will see the FOMC announcement and US building permits and housing starts for May. We believe the US regulator is likely to begin discussing a reduction in the pace of the bond-buying program started in 2020. Reducing QE could push yields higher and create a negative backdrop for gold. However, we believe the Fed is likely to announce its strategy for reducing QE later in the summer at the Jackson Hole conference or at its September meeting. We expect gold to trend lower toward the $1,840/oz support level