Commodities Daily - June 9, 2020

> Oil prices slide as Saudi Arabia ends voluntary extra production cuts. Today, investors are cheering the first phase of the reopening of New York City after about three months of lockdown, which augurs an uptick in refined product demand. Later today, investors will eye the EIA's monthly oil market report, with its US oil production forecasts for this year and next to be under the spotlight. We think the EIA is unlikely to raise its US oil production forecasts from last month. If this is the case, it would be upbeat and would likely keep Brent above the $40/bbl mark.> Gold trading near $1,700/oz ahead of FOMC meeting. Today, investors' focus will be on unemployment and 1Q20 GDP from the eurozone, as well as the NFIB US small business optimism index. Uncertainty continues to cloud the physical market. Yesterday, Bloomberg reported a significant decline in Indian gold imports in May, while investment funds continue to reduce their holdings. The key event for the market in the coming days is the Fed meeting, which gets underway today and will conclude tomorrow with a press conference by Chairman Jerome Powell. We expect gold prices to find support today and to consolidate back in the $1,700-1,720/oz range.OIL PRICES SLIDE AS SAUDI ARABIA ENDS VOLUNTARY EXTRA PRODUCTION CUTSAfter surging toward $43.5/bbl at the start of the day yesterday amid upbeat Chinese crude oil import data for May and following the OPEC+ decision to extend the deepest production cuts by one month, front-month Brent soon began to pare back its earlier gains. The price correction continued throughout the day, and Brent eventually settled at $40.8/bbl, fixing $1.5/bbl below the previous settlement. One of the catalysts for this was a statement by Saudi Energy Minister Prince Abdulaziz bin Salman that the kingdom, along with Gulf allies Kuwait and the UAE, would not continue with their voluntary productions cuts of 1.18 mln bpd beyond June.This move had a strong negative effect on oil prices, as it was already feared that the impact of the OPEC+ extension would be attenuated by an impending production increase from Mexico and a partial restart in Libyan output (although Libya's National Oil Corporation told employees to shut its major Sharara oil field just hours after maintenance operations to restart the field had started because an "armed force" had entered the site). Many now argue that some of the latest oil price rally was overdone and was due to the global market risk-on, elevated Chinese crude imports this year amid low prices, and market pre-pricing expectations of a demand recovery, the scale of which remains unclear. This means that for investor sentiment, very well-managed supply will be absolutely essential in the coming weeks amid a still-uncertain oil demand recovery. This is especially important given fears of a swift return of shale output, which has only decreased by 2 mln bpd in 1H20 despite WTI prices remaining near uneconomical levels. This suggests that shale producers can endure a lower oil price for longer.For oil prices to resume moving higher from here, the expectations of a strong rebound in demand in 3Q-4Q20 need to be confirmed. This would require a series of upbeat refined product inventory reports. However, this is unlikely in the coming weeks as demand for refined products is more likely to remain below supply. It will therefore be very important for investors not to lose faith in successful market rebalancing even if the refined products data continues to come out downbeat in the near term. If, however, confidence is shaken due to what appears to be a daunting inventory overhang, Brent could move below $40/bbl. Today, investors are cheering the first phase of the reopening of New York City after about three months of lockdown, which augurs an uptick in refined product demand. Later today, investors will eye the EIA's monthly oil market report, with its US oil production forecasts for this year and next to be under the spotlight. We think the EIA is unlikely to raise its US oil production forecasts from last month. If this is the case, it would be upbeat and would likely keep Brent above the $40/bbl LD TRADING NEAR $1,700/OZ AHEAD OF FOMC MEETINGGold climbed 0.8% yesterday following a drop of 1.7% on Friday. Support came from ECB President Christine Lagarde, who said that eurozone GDP was set to contract 14% in 2Q20 and stressed the central bank's willingness to use all possible means to tackle the fallout from the coronavirus. She also raised concerns over inflation and a possible deterioration in lending conditions. Her comments coincided with the publication of the results of a survey by the New York Fed, which indicated that inflation expectations are being driven by increased fuel and food prices. Gold typically receives a boost when inflation is on the rise, and yesterday's news had a positive impact, pushing gold 0.8% higher by the close. This morning, it even approached the $1,705/oz mark.Uncertainty continues to cloud the physical market. Yesterday, Bloomberg reported that Indian gold imports crashed by 99% in May to just 1.3 tonnes (versus 105.8 tonnes in May 2019), which is unsurprising given the lockdown measures in place during the month. Meanwhile, investment funds reduced their holdings for a third session in a row this time by 106 koz.Today, investors' focus will be on unemployment and 1Q20 GDP from the eurozone, as well as the NFIB US small business optimism index. The key event for the market in the coming days is the Fed meeting, which gets underway today and will conclude tomorrow with a press conference by Chairman Jerome Powell. We expect gold prices to find support today and to consolidate back in the $1,700-1,720/oz