Commodities Daily - June 17, 2020

> Oil under pressure after climbing on upbeat IEA report; OPEC monthly report and US inventory data eyed. We expect the EIA's weekly inventory data to be less bearish than the API's print, but we think it will yet again show an overall buildup in total oil and refined product inventories. This could be sufficient to pressure Brent toward technical support at $39.4/bbl. A break below that would open a path toward $37/bbl, which we see as unlikely, as it would require a very strong global market risk-off move. Also due today is the OPEC monthly oil market report and OPEC+ technical committee meeting ahead of the Joint Monitoring Ministerial Committee meeting tomorrow, which will set the tone for oil as the week comes to a close.> Gold stabilizing in $1,720-1,740/oz range. Volatility in the gold market moderated yesterday, despite the strong US retail sales for May. Fed Chairman Powell's comments were dovish, but proved unable to jolt gold prices. Powell will go to the House today, where he will speak at 19:00 Moscow time. We expect the gold market to stabilize today and into the weekend, with prices on a trajectory toward lows last seen in mid-May, when gold was trading in the $1,700-1,720/oz range. OIL UNDER PRESSURE AFTER CLIMBING ON UPBEAT IEA REPORT; OPEC MONTHLY REPORT AND US INVENTORY DATA EYEDFront-month Brent began to pick up momentum yesterday morning and was up by around $2.7/bbl from its intraday low of $38.95/bbl, which was partially attributable to what turned out to be an upbeat IEA monthly report. The IEA raised its global demand estimate for this year for the second month in a row (scale of the oil demand rebound will be key for prices in 2H20): it now expects it to fall y-o-y by 8.12 mln bpd this year to 91.72 mln bpd (it previously expected an 8.63 mln bpd drop to 91.23 mln bpd). The report highlighted that China's strong exit from lockdown measures has helped bring demand in April almost back to year-ago levels. It also said that a strong rebound was seen in India in May, although demand is still well below levels from a year ago. The IEA expects non-OPEC supply to contract 3.09 mln bpd this year (slightly less than the 3.27 mln bpd decrease it was projecting a month ago), mainly due to upward adjustments in estimates for North America, primarily attributable to the US. However, returning to bullish factors, demand for OPEC crude this year (the so-called "call on OPEC crude") was revised upward by 0.53 mln bpd to 24.04 mln bpd, amid an upward revision to demand. The agency concluded that if recent trends in production are maintained and demand does recover, the market will be on a more stable footing by the end 2H20.A sharp rebound in May US retail sales and data showing reduced coronavirus death rates in a trial of a generic steroid drug bolstered earlier oil price gains, reviving hopes of a swift post-pandemic economic rebound. Front-month Brent eventually settled at $40.96/bbl, fixing $1.24/bbl above the previous settlement. Overnight, the API reported that US crude stocks surged 3.9 mln bbl to 543.2 mln bbl last week (the EIA's latest report put them at 538 mln bbl). The stock build came amid a slight 0.03 mln bpd decrease in refinery runs and despite a 0.028 mln bpd decrease in imports. However, crude stocks at the Cushing, Oklahoma delivery hub fell yet again, this time by 3.3 mln bbl. The refined product data was also bearish, showing a strong 4.3 mln bbl build in gasoline stocks and a 0.92 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 0.13 mln bbl crude stock build, a 0.75 mln bbl decrease in gasoline inventories and a 3 mln bbl gain in distillate stocks. The downbeat API data weighed on Brent, which tested $40/bbl this morning. We expect the EIA's weekly inventory data to be less bearish than the API's print, but we think it will yet again show an overall buildup in total oil and refined product inventories. This could be sufficient to pressure Brent toward technical support at $39.4/bbl. A break below that would open a path toward $37/bbl, which we see as unlikely, as it would require a very strong global market risk-off move. It is, however, important to note that China has sharply tightened restrictions on people leaving Beijing in an effort to prevent the most serious coronavirus flare-up since February from spreading elsewhere. China is one of the world's few energy consumption bright spots, having staged a rapid recovery over the past few months. Also due today is the OPEC monthly oil market report and OPEC+ technical committee meeting ahead of the Joint Monitoring Ministerial Committee meeting tomorrow, which will set the tone for oil as the week comes to a LD STABILIZING IN $1,720-1,740/OZ RANGEAhead of Fed Chairman Jerome Powell's speech on Capitol Hill yesterday, gold prices reacted to the better than expected US May retail sales with only a modest uptick. The report showed a 17.7% expansion in sales (versus 8.4% expected), versus April's 14.7% contraction. The rebound occurred when people started receiving payments from the government, while in some states restrictions on large shopping centers had begun to be softened. In the end, Powell's comments, though they were dovish, did not support gold prices. Powell emphasized that interest rates would remain at current levels. In addition, he said the corporate debt purchases would be implemented over several years, and that the Fed is ready to use additional tools to support the economy. Today, Powell will speak to the House of Representatives Financial Services Committee at 19:00 Moscow time. US housing starts, building permits and mortgage applications will be in focus. We expect the gold market to stabilize today and into the weekend, with prices on a trajectory toward lows last seen in mid-May, when gold was trading in the $1,700-1,720/oz range.