Commodities Daily - June 25, 2020

> Oil plunges alongside equities as US stockpiles continue to expand. Global factors are weighing on risk assets and oil in particular. These include US threats that could provoke a fresh trade showdown with Europe, as well as a surge in new coronavirus infections in the US, Latin America and India, which have sparked fears that lockdowns may need to be re-imposed. As a result of downbeat fundamental factors, Brent's prompt timespread has shifted back into contango, suggesting there are still concerns about oversupply. In our view, Brent is likely to mainly trade below $40/bbl today amid deteriorating risk appetite. The nearest technical resistance level is $41.3/bbl.> Gold prices down on global market risk-off as investors run for cash. The annual Fed stress tests, ECB meeting minutes and US data including GDP, jobless claims, durable goods orders and wholesale inventories are due today. We think that if gold breaks above technical resistance at $1,768/oz today, it will very likely consolidate into the $1,778-1,789/oz technical range. On the other hand, these US macro releases today are more likely to be upbeat, which would provide headwinds for gold. Technical resistance currently lies within the range of $1,741-1,750/oz.OIL PLUNGES ALONGSIDE EQUITIES AS US STOCKPILES CONTINUE TO EXPANDFront-month Brent fell almost $1.2/bbl to $41.7/bbl in early European trading yesterday, mirroring moves in global equities. Its downward momentum came amid reports that the US is considering slapping tariffs on $3.1 bln of imports from the UK, Spain, Germany and France (primarily on cheese, planes, beer and gin), paving the way for a fresh trade showdown with Europe, just after fears emerged that the trade deal with China is in trouble. Earlier this week, Bloomberg reported that the US plans to re-impose a 10% import tariff on Canadian aluminum by the end of the week unless the Canadian government agrees to limit aluminum exports. In the early US trading hours ahead of the release of yesterday's EIA inventory report, Brent was down to $41.5/bbl. The EIA data ended up showing a buildup in US crude stocks of 1.44 mln bbl to 540.7 mln bbl. This came amid a 0.5 mln bpd rebound in US crude production to 11 mln bpd (note that last week's data covered the fallout from Tropical Storm Cristobal, which forced many producers in the Gulf of Mexico to shut down). A 0.7 mln bpd increase in exports to 3.16 mln bpd, a 0.24 mln bpd increase in refinery inputs to 13.84 mln bpd and a 0.1 mln bpd decrease in imports to 6.54 mln bpd were insufficient to offset the inventory build. Inventories at Cushing, the WTI delivery hub, fell yet again, this time by 1 mln bbl to 45.84 mln bbl.The refined product data, however, continued to show encouraging signs, as despite an increase in refining, gasoline stocks dropped 1.67 mln bbl to 255.3 mln bbl (we note that a proxy for gasoline demand is now just 1 mln bpd below the seasonal average) and distillate stocks were up just 0.25 mln bbl to 174.7 mln bbl. Total commercial petroleum stockpiles (oil and refined products combined excluding strategic petroleum reserves) were up 3.9 mln bbl, largely because of an increase in the propane/propylene and "other oils" categories. Brent fell $1.8/bbl following the release to an intraday low of $39.6/bbl (down $3.3/bbl from the day's high point) as the US stock market continued to plummet. The benchmark eventually settled at $40.31/bbl, fixing $2.32/bbl below the previous settlement. As we have noted on many occasions, total refined product demand is unlikely to exceed supply in the coming weeks. It will therefore be very important for investors not to lose faith in the market rebalancing, even if data continues to come out somewhat downbeat in the near term. If, however, confidence is shaken due to what appears to be a daunting inventory overhang, Brent could settle below $40/bbl in the near term.Another factor weighing on risk assets and oil in particular is that new coronavirus infections have reached record highs in Florida, California and Texas, triggering fears that lockdowns may need to be re-imposed in the US. There has been a rise in cases elsewhere as well, including Latin America and India. There is also evidence that most Asian nations have failed to replicate China's quick post-pandemic recovery. As a result of the downbeat fundamental factors outlined above, Brent's prompt timespread has shifted back into contango, suggesting there are still concerns about oversupply. Today, the market will be keeping a close eye on data from the US, including the third print of 1Q20 GDP, initial jobless claims, durable goods orders and wholesale inventories. In our view, Brent is likely to mainly trade below $40/bbl today amid deteriorating risk appetite. The nearest technical resistance level is $41.3/ LD PRICES DOWN ON GLOBAL MARKET RISK-OFF AS INVESTORS RUN FOR CASHAfter surging $20/oz to almost $1,780/oz midday yesterday, gold swiftly pared back these gains during US trading, retreating back to $1,760/oz this morning. Markets broadly retreated yesterday, with blame widely placed on spiking Covid-19 infections in key population centers of the US. New US threats to impose broad trade tariffs against EU goods did not help, nor did another downgrade by the IMF to its economic forecasts. The IMF now expects global GDP to shrink by 4.9% y-o-y this year, a downgrade from the April forecast of a 3.0% y-o-y contraction. The expected recovery in 2021 is also seen to be weaker, with global growth forecast at 5.4% for the year (although the IMF noted the risk of a major new outbreak in 2021 that could shrink this growth to a mere 0.5%), down from the 5.8% April forecast. What is important to note is that this year gold has shown a strong and somewhat counterintuitive tendency to sell off when global stock markets and energy markets fall sharply. This is because investors have been running for cash - particularly US dollars - across all asset classes. This was the case again yesterday, as reflected by the downtrend in EUR/USD. Furthermore, there has been an incentive to book profits after the $100/oz rally so far this month (an almost eight-year high was reached yesterday). Note, however, that given the current backdrop, these downward moves are very likely to be short-lived - low interest rates and seemingly endless money-printing by central banks in an effort to prop up the global economy will remain broadly supportive for gold prices.The annual Fed stress tests, ECB meeting minutes and US data including GDP, jobless claims, durable goods orders and wholesale inventories are due today. We think that if gold breaks above technical resistance at $1,768/oz today, it will very likely consolidate into the $1,778-1,789/oz technical range. On the other hand, these US macro releases today are more likely to be upbeat, which would provide headwinds for gold. Technical resistance currently lies within the range of $1,741-1,750/oz. A heavy agenda of Asian macro releases is due tomorrow, including South Korean consumer confidence, Japanese CPI, Indonesian GDP, and a long list of Vietnamese releases including GDP. French consumer confidence will also be released early in the