Commodities Daily - June 8, 2020

> Oil prices surge as OPEC+ extends current cuts by a month amid global markets risk-on rally. In our view, Brent is more likely to end the day below $43/bbl amid profit taking and news over the production restart in Libya, although the upbeat data out of China may limit the downside. The lowest technical range Brent could face this week is $40.5-41.5/bbl. Medium-term, Brent is likely to consolidate within the $43.2-43.9/bbl technical range, with strong resistance at $44.1/bbl.> Gold pressured on Friday by strong US labor market data. Gold lost 1.7% on Friday and even reached an intraday low of $1,672/oz. As we write, it has recovered to $1,695/oz. ETF investment demand is weakening, though CFTC hedge fund data still reflects a significant number of net long open positions.OIL PRICES SURGE AS OPEC+ EXTENDS CURRENT CUTS BY A MONTH AMID GLOBAL MARKETS RISK-ON RALLYAfter hovering below $40/bbl at the start of the day on Friday, front-month Brent soon began to rally, ending the day within the $42.0-42.5/bbl range and settling at $42.3/bbl. This was $2.31/bbl above the previous settlement. The list of things that went the bulls' way on Friday is extensive: the pricing-in of an early extension to the current large-scale OPEC+ production cuts, a stock market rally, elevated risk appetite thanks to the unexpectedly bullish US jobs report, the tropical storm Cristobal's shutting 34% of offshore US oil production in the Gulf of Mexico and, finally, the US oil rig count falling for a fifth consecutive week to a record low (down 16 rigs to 206). The US economy unexpectedly added jobs in May: US nonfarm payrolls rose by 2.509 mln, versus consensus estimates of an 8 mln decreased. This comes after a record plunge of 20.7 mln jobs in April. This is a clear signal that the worst of the Covid-19 downturn is probably over, though the road to full recovery could be long.This morning, Brent surged toward $43.5/bbl following the OPEC+ decision over the weekend to extend the current cuts by a month through July. It was also decided that the Joint Ministerial Monitoring Committee will meet every month until December to assess the market conditions and compliance rates, thus allowing OPEC+ ministers flexibility in their decision-making. The next meeting will be on June 18, when a recommendation may be made to extend the cuts through August. Meanwhile, a day after the OPEC+ decision, Saudi Arabia raised its selling prices for crude to all destinations for July by more than expected. However, Riyadh did not say whether it would continue with its voluntary additional 1 mln bpd reduction in July. Meanwhile, Iraq, Nigeria and Kazakhstan, which undercomplied by a combined 1.36 mln bpd in May, will have to make up over July-September what it has failed to cut, although there is no enforcement mechanism for this. It bears noting that the impact of this extension will be attenuated by an impending production increase from Mexico and a partial restart in Libyan output (two major fields in southwestern Libya have reopened, although there is still significant risk to this nascent restart). In our view, Libyan output is unlikely to exceed 0.5 mln bpd this summer (it produced around 1.2 mln bpd late last year before the shutdowns began). We think this OPEC+ meeting put a medium-term floor under Brent prices at $40/bbl. The group's demonstrated resolve to rebalance the oil market reinforces our view of a bullish 2H20.As we write, Brent is consolidating around the $43/bbl mark, with today's uptrend also being driven by Chinese customs data showing May crude imports hitting the highest monthly level on record at almost 11.3 mln bpd, up from 9.84 mln bpd a month earlier and 9.47 mln bpd in May 2019. Today, Reuters highlighted that in 5m20, China imported 10.35 mln bpd of oil, which is up 5.2% y-o-y. We also note that Cristobal has now weakened to a tropical depression. In our view, Brent is more likely to end the day below $43/bbl amid profit taking and news over the production restart in Libya, although the upbeat data out of China may limit the downside. The lowest technical range Brent could face this week is $40.5-41.5/bbl. Medium-term, Brent is likely to consolidate within the $43.2-43.9/bbl technical range, with strong resistance at $44.1/bbl. LD PRESSURED ON FRIDAY BY STRONG US LABOR MARKET DATAUS labor market data for May released on Friday provided a positive surprise for investors. Nonfarm payrolls rose by 2.5 mln during the month, versus the consensus forecast of a drop of 7.5 mln, while unemployment eased from 14.7% to 13.3 %, well below the consensus forecast of 19%. The extremely strong data caused a drop in demand for safe-haven assets and pressured gold, which sank by almost $35/oz in response. Bloomberg reported that ETF funds joined in the selloff, dumping 205 koz on Friday.This week, the markets await the Fed meeting and Jerome Powell's statement. The US labor market is now recovering at a fairly rapid clip, and although it could take several months to get back to pre-coronavirus employment levels, the worst is probably behind. This is likely to pressure gold. We expect it to either consolidate around the $1,700/oz mark today or retreat to $1,670/oz if safe-haven demand continues to slide. Recent data indicated that hedge funds are closing out long positions (long contracts fell by 12k in the week to June 2) but are in no hurry to open short