Commodities Daily - June 5, 2020

> Oil on the rise with stock markets ahead of OPEC+ meeting and US employment figures. We think an upbeat outcome to the OPEC+ meeting could at best push Brent up to the next technical range at $41.5-42.2/bbl next week. However, today we expect it to secure firmly above technical resistance at $40.5/bbl, a mark that it failed to break earlier this week. Brent is also currently strongly correlating with major stock market indexes, which are on an uptrend and could generate further momentum with the release of US nonfarm payrolls data at 15:30 Moscow time.> Gold prices stable, support came from ECB decision. Gold remains in the $1,700-1,720/oz corridor and is trading at around $1,710/oz as we write. Today will see the US monthly jobs report containing nonfarm payrolls and the unemployment rate. We think a negative move in gold at the US open is possible. Technical support for the metal is currently at $1,689/oz. OIL ON THE RISE WITH STOCK MARKETS AHEAD OF OPEC+ MEETING AND US EMPLOYMENT FIGURESFront-month Brent slipped by around $0.6/bbl to as low as $39/bbl yesterday morning before consolidating within the $39-39.5/bbl range, with investors closely watching the latest details on the looming OPEC+ video conference. This week, Brent has dipped below the $40/bbl mark on reports that the meeting was in doubt due to compliance issues within the group and that Saudi Arabia, Kuwait and UAE had no plans to extend the voluntary additional output cuts of 1.18 mln bpd after June. However, reports emerged in early US trading yesterday that OPEC+ producers could still hold a ministerial-level video conference this week and extend the production cuts to prop up the oil market after almost a week of wrangling. Sources told Reuters that a ministerial-level conference could be called at short notice if there was an agreement over Iraq and other producers that have not fully complied with the existing supply cuts. Saudi Arabia and Russia are also pushing the non-complying countries to make up for their poor compliance over the next two months. These headlines pushed Brent toward $40/bbl yesterday afternoon despite the S&P 500 edging 0.3% lower amid stalled US stimulus talks, further protests across the country and jobless claims coming in somewhat worse than expected at 1.9 mln new and 21.5 mln continuing. Brent eventually settled at $39.99/bbl, $0.2/bbl above the previous settlement.This morning, Brent was heading toward $41/bbl amid a stock market rally and on reports that the OPEC video conference has been scheduled for 14:00 Vienna time on Saturday (earlier than originally scheduled), with the OPEC+ meeting to follow at 16:00, which suggests that a solution to the compliance problem is in sight. We firmly believe that a short extension (one to three months) to the current 9.7 mln bpd production cut will be agreed, with a compromise over compliance likely to be found. We think such a decision would help Brent to hold above $40/bbl for the near term and effectively ensure that global demand will break above supply this month and stay there for the rest of the year. A rebalancing oil market in 2H20 and a drawdown in global inventories to the levels seen at the start of the year would fundamentally justify a $50/bbl Brent price in 4Q20. This would also have negative supply implications, as US shale production forecasts would likely be adjusted upward, as industry figures such as Pioneer's CEO believe that US shale producers will start adding rigs with WTI anywhere above $45/bbl. To ensure that oil prices rally straight after the OPEC+ meeting, the group would have to prove to investors that it has solved the "free-rider" problem (which is unlikely, in our view) and for the extension to be for at least three months. We think an upbeat outcome to the OPEC+ meeting could at best push Brent up to the next technical range at $41.5-42.2/bbl next week. However, today we expect it to secure firmly above technical resistance at $40.5/bbl, a mark that it failed to break earlier this week. Brent is also currently strongly correlating with major stock market indexes, which are on an uptrend. Further momentum will be determined by the release of US nonfarm payrolls data at 15:30 Moscow LD PRICES STABLE, SUPPORT CAME FROM ECB DECISIONYesterday saw a number of important events. First and foremost, the ECB kept rates on hold at its monetary policy meeting but expanded its bond-buying program by EUR600 bln (above expectations of a EUR500 bln increase) to now put it at EUR1.35 trln. The plan is now to extend the program for another six months so that it runs at least through June 2021. The ECB's announcement supported gold, which rose to $1,721/oz in the wake of the headline. Meanwhile, US initial jobless claims came in at 1.88 mln, showing another w-o-w decrease and just barely topping the consensus of 1.83 mln. Gold is trading at around $1,710/oz as we write. Today will see the US monthly jobs report containing nonfarm payrolls and the unemployment rate. We think a negative move in gold at the US open is possible. Technical support for the metal is currently at $1,689/