Commodities Daily - June 19, 2020

> Oil up as OPEC+ finalizes compensation mechanism for non-compliers and demand continues to recover in line with expectations. This morning, Brent continued to trend higher and is targeting $42.5/bbl as we write. The next level of technical resistance is at the still-distant $43.4/bbl mark, which we do not expect to be broken today. Due to factors outlined in this comment, the probability of a new and lasting price uptrend has increased. However, we believe the road to $50/bbl will only be cleared if OPEC+ extends the current production cuts beyond July at its upcoming meeting.> Gold prices trending higher, up 0.6% this morning to $1,730/oz. Sentiment in the gold market seems broadly positive. Three Fed officials will speak today, with an event featuring Chairman Powell kicking off at 20:00 Moscow time. Yesterday, Swiss gold exports were in the headlines. The volume of exports to the US rose significantly in May. We expect gold prices to be stable through to today's close. Technical resistance is $1,738/oz.OIL UP AS OPEC+ FINALIZES COMPENSATION MECHANISM FOR NON-COMPLIERS AND DEMAND CONTINUES TO RECOVER IN LINE WITH EXPECTATIONSFront-month Brent started to gain momentum early yesterday, climbing from $40/bbl to consolidate near $41.5/bbl by the end of the day. The main focus yesterday was the OPEC+ Joint Ministerial Monitoring Committee (JMMC) video conference that, as expected, concentrated on compliance issues for the group's production cut deal. The committee reported that a deal had been finalized (one that was reached in principle earlier in June) on a compensation mechanism for members (specifically Iraq and Kazakhstan) that fell short of targets in May. Iraq, which fell short of its 1 mln bpd production cut target in May by 0.573 mln bpd, will produce 0.057 mln bpd below its quota in July, and 0.258 mln bpd below the quota in August and September. According to Bloomberg, Kazakhstan has also agreed on compensatory cuts, while Nigeria and Angola haven't yet submitted plans and have until June 22 to do so. The detailed compensation roadmap has encouraged investors, as it gives added credibility to the OPEC+ production cut deal, since there is now a firmer guarantee that the group's supply isn't going to creep higher as the recovery in demand following the coronavirus lockdowns begins to accelerate.Under the current deal, OPEC+ will taper its cuts to 7.7 mln bpd from August to December, and then to 5.7 mln bpd through April 2022. It is important to note that the OPEC+ JMMC did not discuss extending the record cuts beyond July yesterday. The recommendation for the next level of cuts will be the main focus of its next meeting on July 15. The one-month delay on the matter of extending the deep cuts beyond July to August did not disappoint the market yesterday, implying that current prices are seen as sustainable. We also note that Norway, which is not part of OPEC+ but is cutting oil production on its own (by 0.25 mln bpd in June and 0.134 mln bpd in 2H20) has said that it has no plans to deepen its current cuts. Norway's energy minister highlighted that "there are signs that the market is stabilizing more rapidly than had seemed the case a few months ago."The fact that the market is stabilizing and demand is recovering swiftly has also been noted by global oil traders Vitol and Trafigura (which have a good vantage point over the global petroleum market, handling nearly 15 mln bpd of crude and refined products), according to Bloomberg. Vitol's head of research said "our short-term tracking of demand confirms a healthy demand recovery from the lows of April," adding "China led the recovery in April and May and in the past couple of weeks, the US and European countries have followed." Trafigura, meanwhile, noted that global demand is now about 10 mln bpd below pre-crisis levels, a significant improvement from the 30 mln bpd gap it estimated for a brief period in late March and early April. These views, voiced by reputable sources within the industry, buoyed the market, as they imply that demand in June has in fact exceeded supply (suppressed by the OPEC+ deal) and thus helped tip Brent front-month contracts into backwardation yesterday for the first time since early March, which should help to accelerate the unwinding of the vast global inventory overhang. This morning, Brent continued to trend higher and is targeting $42.5/bbl as we write. The next technical resistance level is at the still-distant $43.4/bbl mark, which we do not expect to be broken today. Given the factors outlined above, the probability of a new and lasting price uptrend has increased. However, the road to $50/bbl will only be cleared if OPEC+ extends the current production cuts beyond July at the July 15 meeting, in our LD PRICES TRENDING HIGHER, UP 0.6% THIS MORNING TO $1,730/OZVolatility picked up yesterday. Following a brief 0.7% pickup to $1,736/oz at 12:00 Moscow time, gold went into a retreat and eventually finished the day 0.2% lower. A similar price increase was seen in the late morning in silver too, so it may have been due mostly to a technical factor in the precious metals markets. There was little news flow, while currencies were stable, including the DXY index, as were Treasury yields.US initial jobless claims for last week were reported yesterday at 1.5 mln, versus the optimistic consensus forecast of 1.3 mln (the previous week also saw 1.5 mln claims). Continuing jobless claims also missed the consensus, at 20.5 mln actual versus 19.8 mln expected.Yesterday, we got some fairly interesting data on gold exports from Switzerland in May, which showed a significant increase in shipments of physical gold to the US. All in all, Swiss gold exports were up 7.5% m-o-m to 141.9 tonnes (versus 132 tonnes in April), with 126.6 tonnes going to the US. The latter figure was the highest since 2012, pointing to extremely strong demand for physical gold both from investors and the retail segment. As a reminder, the coronavirus forced the shutdown of several Swiss gold refiners, which brought gold exports, including to the US, to a halt. The situation seems to be stabilizing now, so we expect US gold imports to moderate in June. Today's calendar is light. Three Fed officials will speak, with an event featuring Chairman Powell kicking off at 20:00 Moscow time. We expect gold prices to be stable today. After some gains this morning, gold is trading at $1,730/oz. Technical resistance is $1,738/