Commodities Daily - March 1, 2021

> Oil ticks higher on massive US stimulus bill progress; busy week ahead. This morning, Brent has gained around $1/bbl as we write despite a downbeat Chinese manufacturing PMI for February and amid the US House on Saturday passing the $1.9 trln Covid relief plan, which now moves to the US Senate for further deliberation. This week, investors will be following the CERAWeek conference, which starts today, with speakers including energy ministers, CEOs and executives from companies such as Exxon Mobil, Shell, BP, Saudi Aramco, Chevron, Eni, ConocoPhillips and Total. More February manufacturing PMI data (for the eurozone and the US) will be out today, while Bloomberg will publish its OPEC production estimate for February. We expect Brent to trade sideways today, holding above $64.6/bbl support while being capped by $65.8/bbl resistance.> Gold edges higher while US Treasury yields decline. Today, investors will eye a speech by ECB President Christine Lagarde and the US ISM manufacturing PMI. We expect Lagarde to commit to weak monetary policy, which should support bullion. We see gold bouncing into a $1,760-1,780/oz range amid the decline in US 10y Treasury yields. A break below $1,720/oz could pave the way to strong support at $1,700/oz, though we think this is unlikely.OIL TICKS HIGHER ON US STIMULUS BILL PROGRESS; BUSY WEEK AHEADDuring the day on Friday, the new front-month Brent contract for May was trending lower amid dollar strengthening and slid from $66/bbl at the start of the day toward $64.5/bbl in the late US trading hours. It eventually settled at $64.42/bbl, fixing $1.69/bbl below the previous settlement. The now expired contract for April settled at $66.13/bbl, fixing $0.75/bbl below the previous settlement. One factor limiting the oil price correction on Friday was the release of the EIA 914 report, which showed US crude oil production in December down by 0.058 mln bpd m-o-m at 11.063 mln bpd, as onshore oil production fell in Texas and North Dakota, the top oil-producing states, which offset a slight rise in offshore output in the Gulf of Mexico. Despite this year's oil price rally, we still expect shale oil producers to focus on reducing debt rather than expanding this year. (This should mean that capex remains low, with the lion's share of planned investment going toward finishing drilled but yet to be completed wells. Thus, the US upstream sector should look to stabilize production in 2021.) On Friday, Baker Hughes reported that active US oil rigs rose by four to 309 last week.This morning, Brent has gained around $1/bbl as we write despite a downbeat Chinese manufacturing PMI for February (the Caixin Media and IHS Markit PMI fell to 50.9 from 51.5 a month earlier, albeit remaining in expansion territory), as factories closed during the Lunar New Year holiday and there were restrictions on mobility during the typically busy travel period. Meanwhile most other manufacturing economies across Asia saw further expansion during the volatile Lunar New Year holiday period. The main global market highlight this morning, which is risk asset supportive, is that the US House on Saturday passed the $1.9 trln Covid relief plan, which now moves to the US Senate (which is 50-50 split and will require full Democratic support) for further deliberation. In the Senate, the Democrats are planning a legislative maneuver to allow them to pass it without Republican support.This week, investors will be following the CERAWeek conference, which starts today, with speakers including energy ministers, CEOs and executives from companies such as Exxon Mobil, Shell, BP, Saudi Aramco, Chevron, Eni, ConocoPhillips and Total. More February manufacturing PMI data (for the eurozone and the US) will be out today, while Bloomberg will publish its OPEC production estimate for February. We expect Brent to trade sideways today, holding above $64.6/bbl support while being capped by $65.8/bbl resistance.The main highlight this week will be the OPEC+ meeting on Thursday and Friday, with the alliance expected to return some barrels to the market, but it is unclear how decisively the group will act. We think OPEC+ will agree to raise output by as much as 2.5 mln bpd in 2Q21. We also think the prospect of demand strongly exceeding supply in 2H21 and 2022 will soon cause pressure to build to end the deal before April 2022. We believe that Saudi Arabia will push for a cautious approach, particularly until the timing for Iran's probable return becomes clearer.GOLD EDGES HIGHER WHILE US TREASURY YIELDS DECLINEGold was trading sideways at $1,760-1,775/oz on Friday morning but retreated to $1,720/oz in early US trading. This coincided with a tick lower in EUR/USD. More importantly, US 10y Treasury yields rose above 1.5%, providing the main reason for the correction in gold. US statistics were mixed: personal spending rose 2.4% m-o-m in January (versus the 2.5% consensus), while personal incomes surged 10% (9.5% consensus) and the core PCE came in at 1.5% (1.4% consensus). Despite the rise in incomes, spending growth was not that fast, and the slight acceleration in core PCE convinced investors that market expectations of monetary policy tightening may be premature. This prompted a decline in 10y yields to 1.4% (taking real yields down to -0.71%) and ultimately helped gold to consolidate above $1,730/oz.The US House of Representatives passed the $1.9 trln fiscal stimulus plan on Saturday, and the US government also authorized Johnson & Johnson's single-dose vaccine. The news has injected optimism into the gold market, as bond yields have declined due to decreased expectations that monetary policy will be tightened anytime soon amid the rise in inflation expectations. Gold is trying to pare back Friday's losses as we write and is wrestling with the $1,755/oz resistance level, having recovered from a more than eight-month low in the previous session. Today, investors will eye a speech by ECB President Christine Lagarde and the US ISM manufacturing PMI. We expect Lagarde to commit to weak monetary policy, which should support bullion. We see gold bouncing into a $1,760-1,780/oz range amid the decline in US 10y Treasury yields. A break below $1,720/oz could pave the way to strong support at $1,700/oz, though we think this is unlikely.