Commodities Daily - June 23, 2021

> Oil prices rise ahead of weekly EIA inventory data, preliminary DM June PMIs. This morning, Brent has been exhibiting positive momentum and has risen back above $75/bbl, as overnight API reported that US crude inventories dropped by a rather sharp 7.2 mln bbl last week. If tonight's EIA data also shows a drawdown in crude stocks, it would be the fifth straight, marking the longest run of declines since January. Oil investors will also eye preliminary June PMI data from the eurozone and the US. We expect upbeat inventory and economic data to push Brent toward resistance at $75.5/bbl, and we think a break above is likely.> Gold holds steady despite decline in US Treasury yields. Gold remained around the $1,780/oz mark yesterday while the 10y US Treasury yield eased to 1.46%. Fed Chair Jerome Powell offered a more dovish tone during his testimony to the US Congress. Bullion remains at $1,780/oz as we write. Today, the market awaits preliminary Markit PMI data for June for several DMs, including the US and eurozone. We expect gold to stay range-bound at $1,765-1,795/oz. OIL PRICES RISE AHEAD OF WEEKLY EIA INVENTORY DATA, PRELIMINARY DM JUNE PMISAfter rising to $75.3/bbl at the start of the day yesterday, front-month Brent began to slide, reaching as low as $74.3/bbl during the European trading hours. Later on, it found tailwinds from rising US stock markets and a weakening dollar, eventually settling at $74.81/bbl, $0.09/bbl below the previous settlement. The main highlight of the day was reporting that OPEC+ may discuss further boosting production at the meeting next week on July 1, as the oil market is shifting toward a strong deficit this summer. Bloomberg reported that Russia is considering making a proposal that the group should ease the global supply deficit by increasing output, citing Russian officials familiar with the matter. Other OPEC+ nations are also discussing a potential supply hike in August, although no specific numbers have been mentioned. We note, however, that Saudi Arabia has typically been cautious about rolling back the production cuts and that its energy minister said last week that he wants to see clear evidence of a strong demand recovery before restoring more halted production.For OPEC+, we believe the main risk is an overheating market. We think that a lack of additional supply amid the rapid recovery in demand would cause Brent to take off from the $75/bbl mark and rally toward $80/bbl, especially seeing as the US and Iran were not able to revive the nuclear agreement prior to Iran's presidential election, which means that the anticipated sanctions relief that would unlock Iranian supplies is now unlikely to come any sooner than 4Q21. This in turn suggests that the physical market will remain incredibly tight this summer as oil refinery runs pick up. Of course, Covid-19 variants could slow the demand recovery, though at this point it seems that global economies will continue to reopen as governments prioritize economic growth.There are only two forces that we believe could cap the rally in crude prices, although we think they are unlikely to do so. The first is the Fed, which recently took on a somewhat more hawkish stance, sending the dollar soaring and commodities tumbling. The other factor is OPEC+, which is currently sitting on over 6 mln bpd of spare capacity and can increase production in response to any upswing in prices. The question is whether the group will choose to do so and, if it does, at what price level. However, even if OPEC+ were to decide to raise group output by 0.5 mln bpd in August, this would barely make a dent in the massive 3 mln bpd crude stock draw we expect that month.This morning, Brent has been exhibiting positive momentum and has risen back above $75/bbl, as overnight API reported that US crude inventories dropped by a rather sharp 7.2 mln bbl last week, while gasoline and diesel inventories rose just 0.96 mln bbl and 0.99 mln bbl, respectively. If tonight's EIA data also shows a drawdown in crude stocks (the Bloomberg consensus expects a 3.5 mln bbl decrease), this would be the fifth straight weekly draw, marking the longest run of declines since January. Oil investors will also eye preliminary June PMI data from the eurozone and the US. We expect upbeat inventory and economic data to push Brent toward resistance at $75.5/bbl, and we think a break above is LD HOLDS STEADY DESPITE DECLINE IN US TREASURY YIELDSGold traded sideways around the $1,780/oz mark yesterday while the 10y US Treasury yield eased to 1.46%. EUR/USD remained stuck at 1.19, curbing movements in gold. US existing home sales for May came in at 5.8 mln, above the consensus forecast of 5.73 mln, though it was down for a fourth straight month, by 0.9%. This created a headwind for gold. Fed Chair Jerome Powell adopted a dovish stance during his testimony to the US Congress. He said that inflation readings had been higher than the Fed expected but were likely to prove temporary as the overshoot in prices had been driven by categories primarily affected by the reopening of the US economy. He added that the regulator would be patient in its approach to increasing rates. Meanwhile, other Fed officials signaled that the US economy is only on the path to further progress. This created support for gold yesterday but failed to move it significantly.Gold is hovering near $1,780/oz as we write. The market today awaits preliminary Markit PMI data for June for several DMs, including the US and eurozone, and US new home sales for May. Fed governor Michelle Bowman will give a speech. The consensus is calling for the Markit data to be slightly down versus May (the consensus is 70 for the US services PMI and 61.5 for manufacturing), and Bowman is widely expected to express dovish views on monetary policy, so we anticipate tailwinds for gold. We expect bullion to remain range-bound at $1,765-1,795/oz