Commodities Daily - March 11, 2021

> Oil stabilizes amid mixed EIA inventory report, subdued US inflation; OPEC report eyed today. Yesterday, after sliding to as low as $66.5/bbl, Brent started to recover amid a subdued US February CPI reading, with a mixed EIA US inventory update only briefly derailing yesterday's the uptrend. This morning, Brent is hovering below $68.5/bbl amid a weaker dollar and positive stock market momentum. Today, investors will eye the OPEC monthly oil market report, the ECB decision and US weekly jobless claims. If the global market risk-on mood continues, Brent could break above the $68.5/bbl resistance level, opening the path toward Tuesday's high of $69.3/bbl.> Gold at one-week high as US yields ease. Ahead of the US February inflation report, gold was trading sideways within a $1,710-1,720/oz range but climbed to $1,725/oz after February inflation printed in line with expectations. Bullion is currently trading near $1,735/oz during Asian trading this morning. Meanwhile, today investors will eye the ECB monetary policy decision and US initial jobless claims data. Today, we think that bullion may test resistance at $1,740/oz, which could open a path to the $1,740-1,765/oz range. Meanwhile, a consolidation below $1,710/oz is unlikely.> Strike could begin at Chile's Los Pelambres copper mine, which accounts for 1.6% of world supply. This, given the current shortage of copper concentrate, could lead to a temporary rise in copper prices toward $10,000/tonne and higher from the current $9,070/tonne.OIL STABILIZES AMID MIXED EIA INVENTORY REPORT, SUBDUED US INFLATION; OPEC REPORT EYED TODAYAfter sliding in excess of $1/bbl to as low as $66.5/bbl during the late Asian trading session yesterday, front-month Brent began to pare these losses amid an uptrend in EUR/USD and positive stock market momentum as investors eyed a US February CPI reading, which came out below the consensus. That eased concerns about the US economy overheating and threw up headwinds against the trend of rising US Treasury yields, which had been pressuring stock markets recently. Brent peaked yesterday at $68.4/bbl, when investors began to eye the EIA weekly oil and refined product inventory update.The EIA showed yet another strong build in crude oil stocks, this time by 13.8 mln bbl (after surging by a record of 21.56 mln bbl the week before) to 498.4 mln bbl. This came amid a 0.9 mln bpd crude oil production uptick to 10.9 mln bpd. The combination of a very strong 2.4 mln bpd recovery in refinery inputs to 12.31 mln bpd, a 0.64 mln bpd decrease in imports to 5.65 mln bpd and a 0.28 mln bpd increase in exports to 2.63 mln bpd proved insufficient to offset the overall build. The crude build was way above what the market was expecting, with oil producers having virtually made up all the production shut during the Texas snowstorm last month. We would expect another weekly crude build in the next report before the figures start to normalize.The refined product data, on the other hand, was again extremely bullish. Gasoline stocks plunged 11.87 mln bbl to 231.6 mln bbl (down 25 mln bbl in the last two weeks) while distillate stocks fell 5.5 mln bbl to 137.5 mln bbl. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) were up 1.32 mln bbl amid a large 4.87 mln bbl build in the "other oils" category. Oil refining saw a boost, as expected, as fuel makers resume operations after the recent weather. We note that gasoline demand is rising as vaccinations roll out and the weather improves. For example, the moving average for gasoline demand is over 8 mln bpd for the first time since November. Distillate demand, meanwhile, has risen to 4.5 mln bpd, the highest level since November 2019, as internet commerce and a resumed flow of consumer goods from Asia continues to support demand.Following the EIA release, Brent briefly dipped to $66.8/bbl, but recovered back above $68/bbl during the second half of the US session. It eventually settled at $67.9/bbl, $0.48/bbl above the previous settlement. We note that the US House passed the $1.9 trln Covid relief bill, which might be considered a political victory for President Biden and is expected to boost oil demand this year amid an easing of coronavirus restrictions. Today, investors will eye the OPEC monthly oil market report, the ECB decision and US weekly jobless claims. The OPEC report comes six days before the IEA is due to put out similar estimates, which represents an unusually large gap between the two monthly outlook releases. The EIA monthly report released earlier this week was mostly downbeat, with downward revisions to the 2021 global demand estimate and an upward revision to the non-OPEC supply estimate. In our view, if the global market risk-on mood continues, Brent could break above the $68.5/bbl resistance level, opening the path toward Tuesday's high of $69.3/bbl.GOLD AT THE ONE-WEEK PEAK AS US YIELDS EASEAhead of the US CPI data for February, gold was trading sideways within a $1,710-1,720/oz range yesterday. Price growth came in at 1.7% y-o-y, which was in line with expectations, while the CPI excluding food and energy came in at a lower than expected 1.3% y-o-y. The inflation print showed that expectations of an overheating of the US economy and possibility of monetary policy tightening by the Fed are premature. That helped gold eventually consolidate above $1,725/oz. The US 10y Treasury yields slid to 1.52%, while the 10y real yield declined from -0.66% to -0.73%. Additional support for bullion prices yesterday was also provided by a strong auction of the 10y Treasury ($38 bln was sold at 1.523%). Lower Treasury yields support gold due to the decrease of the opportunity cost of holding gold. The $1.9 trln Covid-19 relief bill, which is expected to help accelerate the US economic recovery, was finally passed through Congress yesterday. However, this had been expected and appeared to have already been priced in to gold. Gold has risen to $1,735/oz in Asian trading so far today. Meanwhile, today investors will eye the ECB monetary policy meeting and US initial jobless claims for the previous week. Given the recent rise in eurozone government bond yields, as well as the dim economic outlook amid the third wave of coronavirus and slow vaccination, the ECB may increase the amount of QE and extend its term. This could push EUR/USD lower and create headwinds for gold prices, but we think that bullion will be able to make a test of resistance at $1740/oz, which would open a path to the $1,740-1,765/oz range. Meanwhile, a consolidation below $1,710/oz is unlikely today. STRIKE COULD BEGIN AT CHILE'S LOS PELAMBRES COPPER MINE, WHICH ACCOUNTS FOR 1.6% OF WORLD SUPPLYIn Chile, after the miner union at Antofagasta's Los Pelambres mine rejected the company's final wage offer, it looks like a strike could start if the Chilean government does not step in to mediate between the sides. Los Pelambres produces 370-380 kt of copper concentrate per year, which represents 6.5% of Chilean copper concentrate exports (5.7-5.8 mln tonnes per year) and 1.6% of world supply.This month, the benchmark Chinese copper concentrate treatment and refining charge index (calculated as the difference between the exchange price of refined copper and the purchase price of copper concentrate) fell to its lowest level since 2010, indicating that the Chinese copper market is facing its most severe deficit in more than a decade. In the current situation of a severe shortage of copper concentrate, the suspension of production at such a relatively small project on a global scale as Los Pelambres could lead to a temporary rise in copper prices toward $10,000/tonne and higher from the current $9,070/tonne. In addition, if the Los Pelambres miners, amid the currently high copper prices, achieve their goal of raising wages, similar strikes could be threatened or launched at other copper projects in Chile.