Commodities Daily - June 4, 2021

> Oil prices ease amid mixed EIA inventory report, stronger dollar. This morning, Brent is hovering above $71/bbl with investors today primarily eyeing the US monthly employment report for May (nonfarm payrolls data in particular). We highlight that the expected strong job growth data for May (after the resounding disappointment in April) will support the narrative of strong demand for oil but will also support the dollar. We think the positives will prevail today and that Brent will likely start targeting the $72/bbl mark yet again and, under the most optimistic scenario, could climb to $72.7/bbl.> Gold retreats amid surprise rise in US employment. Gold lost 2% yesterday, falling from $1,905/oz to $1,870/oz. The 10y US Treasury yield climbed to 1.63%. The ADP reported a 978k rise in US private payrolls, above the 650k consensus, while initial jobless claims also came in better than expected. Bullion is trading near $1,865/oz as we write ahead of the release of US nonfarm payrolls for May and US factory orders. We expect gold to test support at $1,840/oz today.OIL PRICES EASE AMID MIXED EIA INVENTORY REPORT, STRONGER DOLLARAfter rallying toward $72/bbl early yesterday, Brent began to slide toward $71/bbl. The major highlights for the day were eurozone and US service PMIs for May and the monthly ADP US employment report. Strong US jobs data and record service-sector growth underscored the recovery from the pandemic. However, the robust data stoked concerns about a pullback in central bank stimulus, which pushed US Treasury yields and the dollar higher. Increased talk about a pullback in Fed stimulus, which could pressure stock markets and keep supporting the dollar, is likely to become one of the major stories this summer. A stronger dollar is negative for oil prices, as it makes commodities priced in the US currency more expensive for investors holding other currencies. However, upbeat economic data also underscores the narrative of strong oil demand going forward - this limits the negative effect on oil of the stronger dollar. Also note that signs are beginning to emerge that President Joe Biden may be willing to compromise on his planned corporate tax hike, which would also provide tailwinds for demand.Ahead of the EIA inventory update Brent pared back some of its earlier losses and was trading near $71.5/bbl. Following the API's reported 5.36 mln bbl crude draw a day earlier, the EIA yesterday registered a comparable 5.08 mln bbl to 479.3 mln bbl. This came amid a 0.64 mln bpd drop in imports to 5.63 mln bpd, a 0.36 mln bpd increase in refinery inputs to 15.6 mln bpd and a 0.2 mln bpd drop in crude oil production to 10.8 mln bpd. A strong 0.89 mln bpd decrease in exports was insufficient to offset the overall draw. However, the refined product data was downbeat: gasoline stocks were up 1.5 mln bbl to 234 mln bbl, while distillate stocks swelled 3.72 mln bbl to 132.8 mln bbl, all as a result of higher refining activity. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) were up 1.9 mln bbl, also amid a strong draw in propane stocks. After the release, Brent slid $0.8/bbl, although it later pared back these losses and eventually settled at $71.31/bbl, $0.04/bbl below the previous settlement.We think the drawdown in total stockpiles in the US will prevail through most of the summer (amid a further increase in seasonal demand), which would support prices. Note that the four-week average for gasoline demand ticked up last week and remained at the highest level since March 2020 (this data is for the week ending on May 28, so it's prior to the demand boost provided by Memorial Day weekend). The number may only grow from here as Americans return to the roads this summer. Also worth noting is that jet fuel demand gained for the third straight week when measured by the four-week rolling average.This morning, Brent is hovering above $71/bbl with investors today primarily eyeing the US monthly employment report for May (nonfarm payroll data in particular). We highlight that the expected strong job growth data for May (after the resounding disappointment in April) will support the narrative of strong demand for oil but will also support the dollar. The economy is reopening at a rapid pace, resulting in growing demand for discretionary services such as recreation, accommodation and food services. In addition, plants recovering from supply shortages and the severe lack of housing inventory could have boosted job growth in the goods sector. We think the positives will prevail today and that Brent will likely start targeting the $72/bbl mark yet again and, under the most optimistic scenario, could climb to $72.7/ LD RETREATS AMID SURPRISE RISE IN US EMPLOYMENT Gold dropped from $1,905/oz to $1,870/oz yesterday to reach its lowest level in two weeks. The 10y US Treasury yield rose to 1.63% while EUR/USD declined to 1.212, helping to push gold lower. The ADP reported a 978k increase in US private payrolls, significantly above the consensus of 650k. Moreover, US initial jobless claims came in at 385k last week, slightly below the consensus forecast of 387k. The improving US labor market is negative for bullion as it brings monetary policy tightening one step closer and could see a reduction in QE. During the US session, gold also ran into the headwind of upbeat services PMIs from IHS Markit (70.4 versus the consensus of 70.1) and the ISM (a record high of 64 versus the 63.2 consensus), which provided more signs of an improving economy. The ISM also noted that worker and supply shortages pose a problem for businesses.Gold is trading near $1,865/oz as we write. Today's main data release will be US nonfarm payrolls for May. The consensus is for 674k new jobs, following a rise of 266k in April. US factory orders for April are also due today. We expect gold to test support at $1,840/oz today if the data comes in above expectations. We see a test of resistance at $1,890/oz as