Commodities Daily - March 1, 2022

> Oil prices stabilize amid expectations of SPR release by major importers. We think Brent is likely to continue hovering just below $100/bbl today, as investors continue eyeing developments in Ukraine, the further international response to these developments, OPEC+ JTC meeting results, Bloomberg data on OPEC February production and DM February manufacturing PMIs.> Gold price rose on geopolitical tensions. Gold rose from $1,890/oz to $1,910/oz yesterday, while the 10y US Treasury yield slid from 1.96% to 1.86%. Gold is trading near $1,905/oz as we write. Markets await the ISM manufacturing PMI for February. We expect bullion to trade in a $1,900-1,930/oz corridor today.> Aluminum hits another all-time high; iron ore on the rise. Base metals traded higher yesterday, with aluminum hitting another all-time high early in the session on a disruption in alumina supply from Ukraine. However, all base metals have been responding to the geopolitical developments surrounding Ukraine. Iron ore is extending its recent gains amid expectations of higher consumption in March and following a relatively strong February official manufacturing PMI print from China. We see potential market interventions by the Chinese authorities as the key downside risk for iron ore prices.OIL PRICES STABILIZE AMID EXPECTATIONS OF SPR RELEASE BY MAJOR IMPORTERSYesterday, after spiking early in the day, the new front-month Brent contract for May began to consolidate within the $97-100/bbl range as major crude importers, including the US, started to consider releasing about 60 mln bbl of crude from emergency stockpiles to quell supply fears. According to Bloomberg, 30 mln bbl from the US SPR and an equivalent amount from a group of other countries is being considered. What is important to highlight is that although the US SPR salt caverns (where SPR crude in stored) are technically capable of very large discharge rates, the pipeline network has only limited spare capacity to transport additional volumes (unless the government declares eminent domain), which means even the US cannot release more barrels until June when the current SPR releases (which were announced at the end of last year) end. Regarding the current discharge, the official schedule suggests all 50 mln bbl will be released by end-April (at a drawdown rate of 0.41 mln bpd) and it is the release of these 50 mln bbl over four months that would test the limits of the SPR's true daily release capacity on pipelines. The total that can be pumped out of the caverns is likely another 0.05-0.1 mln bpd.This morning, Brent is trading near $99/bbl as investors are trying to figure out whether a possible release of strategic crude reserves by the US and its allies could do much to curb a dramatic surge in prices. Today, in our view, Brent will most likely continue hovering below $100/bbl as investors monitor developments in Ukraine, the further international response to these developments, the OPEC+ JTC meeting, Bloomberg data on OPEC February production and February Manufacturing PMIs from developed markets.Meanwhile, Iran nuclear talks are still in the final stretch and a deal is still seen as likely in March, even as several issues remain unresolved. There is also the risk that Iran pushes too hard for additional concessions, causing talks to stall or collapse. If a deal does end up being reached, oil sanctions would be lifted two to three months afterward, implying Iranian oil returns in May or June. Iran could then unwind inventories, which have risen to 75-85 mln bbl (mostly condensate), as loadings to inventories have been outpacing current Chinese LD PRICE ROSE ON GEOPOLITICAL TENSIONSGold rose from $1,890/oz to $1,910/oz yesterday, while the 10y US Treasury yield slid from 1.96% to 1.86%. Meanwhile, EUR/USD fell from 1.127 to 1.121, creating headwinds for bullion. The geopolitical risk premium increased in gold over the last few days. The uncertainty supported interest in safe havens and with lower US Treasury yields gold returned above $1,900/oz. Meanwhile, the mixed macro data didn't prevent gold from advancing. The preliminary reading of US wholesale inventories for January was well below expectations at 0.8% versus the 1.3% consensus. A lower reading of this figure is seen as positive for the US economy, because it positively affects GDP. Additionally, the February Dallas Fed manufacturing activity index more than tripled expectations. Meanwhile, Chicago PMI showed signs of slowdown in February. Atlanta Fed President Raphael Bostic gave a speech yesterday in which he reiterated his view that the March liftoff should be data dependent. He supports a 25 bp rate hike, but if the next US inflation print is elevated he would look for a 50 bp increase. This also provided slight headwinds for bullion during the US trading session.During Asian trading today gold is near $1,905/oz. Markets await the ISM manufacturing PMI and Markit manufacturing indexes in the US and eurozone, all for February. Expectations for the ISM are 58 points, slightly more optimistic than the January reading. If this expectation is confirmed, gold could come under some pressure, although the geopolitical risks still the main driver. If the geopolitical backdrop remains roughly the same, we expect bullion to trade in a $1,900-1,930/oz corridor UMINUM HITS ANOTHER ALL-TIME HIGH; IRON ORE ON THE RISEBase metals mostly closed higher yesterday, with nickel an exception. The 3m LME contract for copper was almost flat at $9,884/tonne, aluminum added 0.33% (+$11/tonne from the previous day's close) to finish at $3,369/tonne and zinc rose 1.23% (+$44/tonne) to $3,666/tonne, while nickel slid 0.32% (-$79/tonne) to settle at $24,282/tonne.Although the d-o-d price changes were only moderate, volatility in the base metals space was quite high yesterday, with some metals making significant gains early in the session. Geopolitics continued to drive prices, with aluminum hitting another all-time high of $3,525/tonne. Aluminum remained the strongest outperformer yesterday due to fears of a disruption in supply from Russia. These fears were realized - to a certain extent - yesterday when Russian giant Rusal halted shipments from its alumina refinery in Ukraine to its smelters in Russia. The significant reduction in alumina output will have a meaningful impact on primary metal production, thus weighing heavily on the balance in the global aluminum market, since Russia accounts for around 6% of the world's aluminum output. Although we are already seeing the physical impact of the geopolitical escalation on Russia's aluminum sector, the key downside risk to production - sanctions that would hurt metals producers - is still unrealized. Judging by the metal price dynamics, the market sees a very limited probability for the worst-case scenario (otherwise, we might have seen the LME aluminum contract move to well above $4,000/tonne). In any case, the supply-side fears are what have been driving the current rally.Meanwhile, iron ore is gaining momentum for the second day in a row, with futures in Singapore quoted at $147/tonne as we write. The uptick came as a result of growing expectations of higher demand for iron ore in March. China's official manufacturing PMI came in today at 50.2 in February, up from the January level and above expectations. It looks like the Lunar New Year holiday and Covid restrictions had only a limited impact on China's economic activity in February. Moreover, Chinese steel consumption is expected to rebound in March. Meanwhile, the situation in Ukraine has also been providing a boost to iron ore prices. Potential market interventions by the Chinese authorities seem to be the only downside risk for prices at the