Commodities Daily - June 2, 2020

> Oil ticks higher ahead of OPEC+ meeting and amid a gradual recovery in global manufacturing activity. Today, investors will continue to focus on the upcoming OPEC+ meeting and talk of an extension to the current deal, which we think would likely push Brent above the $40/bbl mark if it were to happen. So far today, Brent has been battling with technical resistance at $38.7/bbl, and we expect it to remain below the $39/bbl mark today amid an apparent lack of drivers and slim pickings in terms of data releases. However, we note that a further shift higher, perhaps driven by an upbeat outcome to the OPEC+ meeting, would vault Brent into the $39.5-$40.5/bbl technical range.> PMIs from developed markets fail to have much of an effect on gold. Gold prices are still hovering around the $1,740/oz mark and we do not expect much volatility today. The risks stemming from the ongoing protests in the US were partially priced in yesterday, while no major data releases are due today. OIL TICKS HIGHER AHEAD OF OPEC+ MEETING AND AMID A GRADUAL RECOVERY IN GLOBAL MANUFACTURING ACTIVITYYesterday morning, front-month Brent was trading near the $38/bbl mark. A sharp drop toward $37/bbl ahead of the US session proved short lived, and it returned to $38/bbl later in the day before closing at $38.32/bbl, $0.48/bbl above the previous settlement. The recovery from the $37/bbl mark in the latter half of the day came amid a stock market rally, despite mixed headlines regarding Covid-19 and intensifying protests in the US. US President Trump said military force would be used to tackle rioting and looting. Manufacturing PMIs for a number of key economies (an important indicator of oil demand) improved in May, providing support for the oil market and suggesting the worst of the economic downturn may be behind us as businesses are reopening and the global industrial sector is now on a slow path to recovery. However, the recovery could take years due to high unemployment. The manufacturing PMI for May was highest in China, which encountered the virus and introduced a lockdown sooner. But even so, it was only just above the 50 level, which indicates that growth is barely there.OPEC+ officials appear to comprehend that a V-shaped recovery in oil demand is not in the cards. Reuters recently reported, citing three OPEC+ sources, that OPEC and Russia are moving toward a compromise on extending the current oil output cuts and are discussing a proposal to roll over the supply curbs for another one or two months. On the question of rolling over the 10 mln bpd combined production cut, Russian sources told Reuters that it would be for a month or two, not for six months. It is also important to highlight that two days after the idea of bringing forward the meeting (to June 4 from June 9), delegates are still wrangling over a new date, according to Bloomberg, citing OPEC+ delegates. We maintain our view that a short extension to the current deal is almost a done deal, as demand is gradually recovering, while there is a growing risk that 1 mln bpd of Libyan production could return online. Libyan National Oil Corporation has reportedly begun talks with local factions to reopen fields in the west, possibly early this month, although we do not expect production to restart swiftly.Today, investors will continue to focus on the upcoming OPEC+ meeting and talk of an extension to the current deal, which we think would likely push Brent above the $40/bbl mark if it were to happen. So far today, Brent has been battling with technical resistance at $38.7/bbl, and we expect it to remain below the $39/bbl mark today amid an apparent lack of drivers and slim pickings in terms of data releases. However, we note that a further shift higher, perhaps driven by an upbeat outcome to the OPEC+ meeting, would vault Brent into the $39.5-40.5/bbl technical IS FROM DEVELOPED MARKETS FAIL TO HAVE MUCH OF AN EFFECT ON GOLDPMIs for May were released yesterday. Investors were watching to see whether the figures would show signs of a recovery in activity. The global manufacturing PMI came in at 42.4, which is slightly above the trough reading of 39.6 registered in April. The ISM US manufacturing index came in at 43.1 (the employment component was 32.1, which is above the previous 27.5). US construction spending, meanwhile, was expected to drop 7% in April but ended up coming in just 2.9% lower. On the whole, the statistics released yesterday were slightly better than expected and point to a gradual recovery in business activity in key global economies. Gold's reaction to the data was rather modest, however. This morning, it is still trading at around the $1,740/oz level, and we don't expect significant volatility during the day. The risks associated with the ongoing protests in the US were already partially priced in yesterday, while no significant data releases are due today.