Commodities Daily - March 16, 2022

> Oil remains under pressure ahead of IEA monthly report and EIA weekly inventory update. This morning, Brent is paring back yesterday's losses and is trading above $102/bbl. Today, investors will eye the monthly IEA oil market report, EIA weekly inventory update and Fed meeting. Today, we think Brent is likely to continue trading around the $100/bbl mark. There is a risk of additional headwinds that could come as the result of UK Prime Minister Boris Johnson's visit to the UAE and Saudi Arabia. > Gold prices slide ahead of FOMC meeting results. Gold fell from $1,950/oz to $1,920/oz yesterday, while the 10y US Treasury yield rose from 2.13% to 2.15%. Gold is trading near $1,915/oz as we write. Markets await the FOMC meeting results, Fed Chairman Jerome Powell's press conference and US retail sales data for February. We expect bullion to trade in a $1,910-1,930/oz corridor today.> Chinese lockdowns on the agenda; iron ore gains momentum on stronger demand outlook. The recent decline in base metals quotes slowed yesterday, although risk-off sentiment continued to dominate the markets. China's lockdowns somewhat offset the supply risks stemming from the geopolitical uncertainty, meaning that base metals prices are likely to find new equilibrium levels above their technical support levels. Iron ore remains on the rise, as investors are anticipating increased steel output from China following the end of Olympics-related restrictions.OIL REMAINS UNDER PRESSURE AHEAD OF IEA MONTHLY REPORT AND EIA WEEKLY INVENTORY UPDATEYesterday, Brent first tumbled almost $8.3/bbl to $97.4/bbl amid signals that the Iran nuclear talks may resume, which could pave the way for more oil to come to the market, while intensifying lockdowns in China have introduced risks to global demand. Russia's Foreign Minister said that Russia had received "written guarantees" from the US that it will not impair Russia's nuclear cooperation with Iran. Later in the day, Brent started to stabilize within the $98-102/bbl range. This came as Russian President Vladimir Putin told the European Council president that Ukraine "is not showing a serious attitude toward finding mutually acceptable solutions." Brent eventually settled at $99.91/bbl, fixing $6.99/bbl below the previous settlement.Meanwhile, yesterday's monthly OPEC report highlighted that the situation in Ukraine threatens to intensify the surge in global inflation, which would hurt oil demand and investment. The report suggests that OPEC is producing enough to keep markets broadly balanced. Note that its 13 members boosted output by 0.44 mln bpd to 28.47 mln bpd in February, bringing the average for the year so far to 28.25 mln bpd, or a little above the average required by the OPEC+ deal this quarter. The OPEC secretariat also noted that its demand growth forecast for this year "is subject to change in the coming weeks, when there is more clarity on the far-reaching impact of the geopolitical turmoil."This morning, Brent is paring back yesterday's losses and is trading above $102/bbl. Today, investors will eye the monthly IEA oil market report, EIA weekly inventory update and Fed meeting. Overnight, the API reported a 3.75 mln bbl increase in US crude stockpiles last week, 2.3 mln bbl increase in crude oil inventories at Cushing, 0.89 mln bbl increase in distillates stocks and a 3.8 mln bbl draw in gasoline inventories. Today, we think Brent is likely to continue trading around the $100/bbl mark. There is a risk of additional headwinds that could come as the result of UK Prime Minister Boris Johnson's visit to the UAE and Saudi Arabia, where he will to try to persuade the UK's Gulf allies to step up oil production and ease pressure on energy prices. He is also due to meet Crown Prince Mohammed bin Zayed, the UAE's de facto ruler, in Abu Dhabi on Wednesday morning, before traveling to Riyadh for a meeting with Saudi Crown Prince Mohammed bin LD PRICES SLIDE AHEAD OF FOMC MEETING RESULTSGold fell from $1,950/oz to $1,920/oz yesterday, while the 10y US Treasury yield rose from 2.13% to 2.15%. Meanwhile, EUR/USD climbed from 1.094 to 1.097. A slight ease in the geopolitical situation yesterday allowed investors to focus more on fundamental factors. The February PPI data from the US showed a strong 10% y-o-y increase in producer prices, which matched expectations, though the 0.8% m-o-m figure was slightly below the consensus estimate of 0.9% and the figures for January were revised upward. Most of the price increase stemmed from the rise in energy costs amid escalating geopolitical tensions. The PPI data weighed on gold prices, as the still-elevated price growth could encourage the Fed to start acting more aggressively, although probably not at the ongoing meeting given the current level of uncertainty. Meanwhile, producer price growth did not exceed expectations, which probably resulted in a decline in investment demand for gold, a traditional hedge against inflation. The Empire State manufacturing index slipped into negative territory in March, dropping to -11.8. Analysts had been anticipating an improvement from the February reading of 3.1. However, this data failed to support bullion with the FOMC meeting results looming on the horizon.During the Asian trading session today, gold was quoted near $1,915/oz. Markets await the FOMC meeting results, Fed Chairman Jerome Powell's press conference and US retail sales data for February. The Fed is still expected to kick off the rate-hike cycle today with a 25 bp increase to the federal funds rate. It is also expected to signal 25 bp hikes at each remaining meeting this year. This would bring the federal funds rate target to 1.75-2.00%, a scenario that is already priced in. The Fed is also likely to provide clues on when its balance sheet might begin to shrink. However, the main things to focus on will be Powell's comments, the Fed's updated economic forecasts and the dot plot. The Fed's rhetoric will likely be fairly restrained given the current geopolitical situation, which poses risks for the US economy. We expect gold to continue to decline ahead of the release of the FOMC statement, but it may be able to recover somewhat after Powell's comments. All in all, we think bullion will stick to a range of $1,910-1,930/oz INESE LOCKDOWNS ON THE AGENDA; IRON ORE GAINS MOMENTUM ON STRONGER DEMAND OUTLOOKBase metals closed lower yesterday. The 3m LME contract for copper fell 0.31% (-$31/tonne on the day) to $9,904/tonne, aluminum dropped 1.27% (-$42/tonne) to $3,278/tonne, nickel remained flat at $48,033/tonne and zinc eased 0.29% (-$11/tonne) to $3,798/tonne. Today, investors are expecting nickel trading on the LME to resume after a weeklong freeze. The exchange has capped the daily change at 5% in either direction. Most traders expect the price to touch the lower limit, according to Bloomberg. Whatever happens, we are likely to see an extremely volatile session today. Meanwhile, the recent decline in other base metals slowed yesterday, although broad risk-off sentiment remained in place. Chinese lockdowns and the repercussions for the global economy continued to dominate the agenda. There are signs that construction activity has already been impacted in several regions of the country, so metals exposed to this sector will probably see some further downside in the days to come. Zinc prices have fallen 24% from last week's all-time high of $4,896/tonne to a local low of $3,736/tonne yesterday. Aside from the demand risks, we are seeing an uptick in supply of the metal, which is used in galvanizing. Stocks in LME warehouses increased this week for the first time in more than a month, while the cash to three-month spread has been in contango since the beginning of last week. We expect zinc futures to head toward the 50d moving average, which currently stands at $3,662/tonne. Given the risks on the supply side, we do not expect the price to break through this strong support level.Iron ore futures in Singapore are back on the rise today, after sliding to $143/tonne yesterday amid the lockdowns in China. Weaker demand for this steel-making ingredient is still in focus, as the resurgence of Covid-19 in the main consuming country is threatening manufacturing activity. However, investors expect steel output to rebound after sliding 10% in the first two months of the year amid emissions-related restrictions (we estimate that it drops 12% y-o-y in 1Q22). Steel mills are now expected to restock and prepare for an increase in production, as the Paralympics-related restrictions have come to an end. That said, downside for iron ore demand from the lockdowns is likely to be somewhat offset by expectations of stronger steel output in the months to