Commodities Daily - June 4, 2020

> Oil dips on OPEC+ compliance issues, further rise in US liquids stockpiles. The release of Saudi Arabia's official July selling prices, scheduled for today, is likely to be delayed, much like in the last two months. As for the global macro backdrop, the ECB decision will be in focus today. The US trade balance and weekly jobless claims will also be published. Ahead of the OPEC+ meeting, Brent looks neutral to us in a $38.7-40.5/bbl technical range.> Gold prices remain under pressure amid positive macro statistics. A number of macro releases were published yesterday. PMIs (both composite and services) came in better than expected nearly across the board. The global PMI for May printed 42.4, well above the 39.6 in April. US labor market data also buoyed investors. All of this converged to push gold prices sharply lower at the US open. Gold ended up falling to $1,690/oz but has retraced some of those losses so far today. On today's agenda are the ECB meeting and US initial jobless claims. OIL DIPS ON OPEC+ COMPLIANCE ISSUES, FURTHER RISE IN US LIQUIDS STOCKPILESAfter failing to secure above $40.5/bbl early yesterday, front-month Brent began to slide, hitting an intraday low of $38.8/bbl following a Bloomberg report that the looming OPEC+ meeting is in doubt due to compliance issues within the group. OPEC+ back-tracked on the idea to move the meeting from the original June 9-10 to today, while Saudi Arabia and Russia are demanding that undercomplying countries implement the cuts already promised, but also asking for deeper curbs in the coming months to compensate for their earlier failings. Clearly, more time is needed to reach a compromise on both the extension and compliance. We note that Iraq, Nigeria and Kazakhstan are the countries that fell short of their pledges in May (with compliance of around 43%, 13% and 2%), and we do not see them as likely to agree to deeper cuts to make up for their earlier undercompliance.The compliance issues interrupted the momentum that was building to extend the current 9.7 mln bpd phase one (May-June) cuts for one to three months, causing Brent to slip $1.7/bbl. We note that under the original terms of the agreement reached in April, Saudi Arabia could boost its production from 7.5 mln bpd in June (the kingdom cut by an extra 1 mln bpd) to 8.99 mln bpd in July, while Russia could raise its output from 8.5 mln bpd to 8.99 mln bpd. Despite the last-minute obstacles that have emerged, investors still believe that Saudi Arabia and Russia have in principle reached an agreement for a short extension to the deal, which is likely to be finalized next week. The rather limited and brief oil price correction yesterday suggests that investors remain mostly upbeat, believing that the group will find a compromise and come up with some type of mechanism to improve compliance.Ahead of yesterday's EIA inventory report, Brent was trading near $39.2/bbl. The report indicated a 2 mln bbl draw in crude stocks to 532.3 mln bbl, which came amid a 1 mln bpd decline in imports to 6.18 mln bbl, a 0.2 mln bpd decrease in crude output to 11.2 mln bpd and a 0.32 mln bpd increase in refinery inputs to 13.3 mln bpd. A 0.38 mln bpd decrease in exports to 2.8 mln bpd was insufficient to prevent the decline in oil inventories. Crude stocks at the Cushing WTI delivery hub in Oklahoma dropped by 1.74 mln bbl last week to 51.7 mln bbl. The refined product data, on the other hand, was bearish, showing another 2.8 mln bbl increase in gasoline stocks to 257.8 mln bbl (refineries are raising output amid a slow recovery in demand) and a 9.9 mln bbl rise in distillate stocks to 174.2 mln bbl. Total commercial petroleum stockpiles (oil and refined products excluding strategic petroleum reserves) climbed by 15.14 mln bbl, underlining the overall bearish tone of the report. A strong pickup in end-user demand in the coming weeks will be crucial to bring about the massive drawdown in product inventories that is hoped for. Following the release, Brent briefly slid toward $38.8/bbl again, though it eventually settled at $39.79/bbl, $0.22/bbl above the previous settlement.Given the above, the release of Saudi Arabia's official July selling prices, scheduled for today, is likely to be delayed, much like in the last two months. As for the global macro backdrop, the ECB decision will be in focus today. The US trade balance and weekly jobless claims will also be published. Ahead of the OPEC+ meeting, Brent looks neutral to us in a $38.7-40.5/bbl technical LD PRICES REMAIN UNDER PRESSURE AMID POSITIVE MACRO STATISTICSIn yesterday's comment, we discussed how PMIs (both composite and services) from China and the eurozone came in above the consensus forecasts. The trend continued with yesterday's batch of upbeat data from the US, which supported hopes for a quicker than previously expected economic recovery in June. The ISM US nonmanufacturing PMI came in at 45.4 points (versus expectations of 44.4), which is significantly above the 41.8 registered in April. The trend in the US labor market also suggests that most severe effects of the coronavirus are now passed. The ADP report showed that 2.76 mln jobs were lost in May, which is significantly below the 9 mln consensus. Gold prices plunged as a result, losing $35/oz within two and a half hours following the data releases and closed the day 1.6% lower. Silver prices saw even sharper selling, losing 2.3% on the day. The key event on today's schedule is the ECB meeting. The market expects a EUR500 bln increase in its bond-buying program to be announced. Also of importance will be comments by ECB President Christine Lagarde about Europe's economic prospects. Initial jobless claims and trade balance data will be unveiled in the US. As of this writing, gold prices are trading at around $1,705/oz. We expect gold to continue to consolidate and to remain in the $1,700-1,720/oz corridor today.