Commodities Daily - June 3, 2020

> Oil continues to climb, with US economic and oil inventory data in focus. Ahead of the EIA inventory data today, investors will be digesting the US ADP employment report, the IHS Markit US service sector and composite PMIs as well as the ISM nonmanufacturing PMI for May. By and large, the consensus expects the data to be upbeat and show a m-o-m recovery in US economic activity, which should support risk assets today. However, we anticipate downbeat US oil and refined product inventory data, including a crude oil stock build of around 3 mln bbl and hefty increases in the refined products category. We think the current risk-on environment and upbeat economic data will push Brent past technical resistance at $40.5/bbl today, but what we expect to be a downbeat EIA report should prevent the benchmark from pushing on to the next technical range at $41.5-42.2/bbl.> Gold prices under pressure amid growth in demand for defensive assets. Gold started sliding yesterday at the open of the US session and eventually closed 0.7% lower. The pressure is continuing today, with gold down to $1,716/oz as we write. At the center of attention was the Caixin Chinese composite PMI, which came in at 54.5, while the services PMI was 55. We expect gold prices to stay around the $1,700-1,720/oz level if risk sentiment remains strong. OIL CONTINUES TO CLIMB, WITH US ECONOMIC AND OIL INVENTORY DATA IN FOCUSFront-month Brent added $1/bbl to $39.5/bbl yesterday morning, closely mirroring stock market gains. A correction to $38.7/bbl ahead of the US trading session proved short lived, and Brent eventually settled at $39.57/bbl, up $1.25/bbl on the day. Investors widely accredited the rally to better than expected economic data, as countries around the globe are gradually exiting lockdowns and businesses are reopening, though the deterioration in US-Chinese relations, the worsening coronavirus situation in Latin America and India and the civil unrest in the US remain persistent risks. The ongoing rally in EUR/USD is also providing a tailwind for crude oil, which is traded in dollars. Yesterday, fundamental support emerged from the Russian Energy Ministry, which announced that Russian oil production excluding gas condensate fell to 8.59 mln bpd in May (just above the 8.5 mln bpd target under the latest OPEC+ deal), with Russian oil and gas condensate production reportedly falling to 9.39 mln bpd in May.Overnight, the API reported that US crude stocks fell 0.48 mln bbl to 531 mln bbl last week (the EIA's latest report put them at 534.4 mln bbl). The API's reported oil stock draw came amid a 1.3 mln bpd decrease in imports and despite a 0.05 mln bpd drop in refinery runs. Crude stocks at the Cushing, Oklahoma delivery hub fell by 2.2 mln bbl. The refined product data was bearish, showing a 1.7 mln bbl build in gasoline stocks and a strong 5.9 mln bbl increase in distillate inventories. Investors are now positioning themselves for the EIA report today at 17:30 Moscow time. The Bloomberg consensus is for a 3 mln bbl crude stock build, a 0.3 mln bbl decrease in gasoline inventories and a 2.9 mln bbl gain in distillate stocks. This morning, Brent surged toward technical resistance at $40.5/bbl, and it is hovering below this mark as we write. Support is coming from the ongoing stock market rally, with investors pricing in the 10 mln bpd of OPEC+ production cuts for another one or two months, although it is still unclear whether the OPEC+ video conference will be held tomorrow or on June 9, as initially planned. Such an extension would widen the supply deficit in 2H20. Further support has come today from an upbeat Caixin/Markit services PMI for China, which rose from 44.4 in April to 55.0 in May, the highest level since 2010. Ahead of the EIA inventory data today, investors will be digesting the US ADP employment report, the IHS Markit US service sector and composite PMIs as well as the ISM nonmanufacturing PMI for May. By and large, the consensus expects the data to be upbeat and show a m-o-m recovery in US economic activity, which should support risk assets today. However, we anticipate downbeat US oil and refined product inventory data, including a crude oil stock build of around 3 mln bbl and hefty increases in the refined products category. We think the current risk-on environment and upbeat economic data will push Brent past technical resistance at $40.5/bbl today, but what we expect to be a downbeat EIA report should prevent the benchmark from pushing on to the next technical range at $41.5-42.2/ LD PRICES UNDER PRESSURE AMID GROWTH IN DEMAND FOR DEFENSIVE ASSETSYesterday, gold prices were hovering around $1,740/oz amid moderate volatility until the US session got underway, which ushered in a sharp downturn in gold. It finished the day 0.7% lower. What drove gold lower were rising expectations of a quick recovery in leading global economies. This drove gains in risk assets and meant pressure on gold. However, demand for gold from ETFs remains strong: yesterday purchases worth 0.1% of holdings were made (total ETF holdings are currently around 100.5 mln oz). In focus today are composite and service sector PMIs. The data published already today exceeded expectations nearly across the board, particularly in China, where the Caixin composite PMI printed 54.5, while the services PMI came in at 55. A brighter picture was also seen in the eurozone, where the Markit composite PMI for May came in at 31.9 (above the 30.5 consensus), while the services PMI was 30.5 (above the 28.7 consensus). We think the main selling in gold may have already happened yesterday and early today and that prices will hold in the $1,700-1,720/oz range today, assuming risk sentiment stays strong.