Commodities Daily - March 17, 2020

> Oil falls as global lock-down measures strengthen amid growing supply. Investors will continue to closely monitor US inventory data, with API set to publish its latest update today at 23:30 Moscow time, followed by EIA data tomorrow at 17:30. This morning, Brent continues to fluctuate within a $30-31/bbl range. We see potential for it to slide into a technical corridor of $27.1-29.8/bbl again this week (as it did yesterday), as the global selloff does not seem to be over. We also note that Brent would face resistance at $34.2/bbl were it to begin recovering alongside stock markets. US February retail sales data will grab some attention today but is unlikely to generate much volatility.> Precious metals markets in panic mode. On the day yesterday, palladium lost 11.7%, platinum 12.7% and silver 12.3%. Gold prices in comparison were more stable, having retreated just 1% to $1,514/oz. The scheduled Fed meeting gets underway today. Taking into account the latest actions by global central banks, we expect the Fed's rhetoric to continue to be dovish. We think the negative momentum in gold could continue today, as investment demand for gold was very high in January-February, and it will take time for open positions to be closed.OIL FALLS AS GLOBAL LOCK-DOWN MEASURES STRENGTHEN AMID GROWING SUPPLYAfter trading sideways - mostly within the $32-33/bbl range - during the Asian trading session yesterday, front-month Brent began to slide. It tumbled below $30/bbl at the very start of trading on Wall Street. For the rest of the day, it mostly held in a $30-31/bbl corridor. It eventually settled at $30.05/bbl, fixing $3.8/bbl below the previous settlement. Oil's strong downward momentum was fueled by the continuing turmoil in global financial markets. US stock indexes registered their worst losses since 1987 yesterday, while US President Donald Trump warned of a possible recession and that the economic disruption from the coronavirus could last into the summer. He also markedly changed his tone on the outbreak, urging Americans not to gather in groups of more than ten people. Meanwhile, airlines continue to scale back their daily flights as more and more countries go into lock-down, which has hit global fuel consumption hard. The recently imposed US-EU and US-UK (35% of US-Europe air traffic) travel bans alone have put close to 0.3 mln bpd of jet fuel demand at risk. Canada has now closed its borders to most foreigners, while France may further tighten its national lock-down and Germany has partially closed its borders with five neighboring countries. One other thing we feel is definitely worth highlighting is that yesterday the collapse in demand brought wholesale gasoline prices in the US close to parity with WTI (they even briefly dipped below the US oil benchmark for the first time since 2009).Elsewhere, Saudi Aramco hosted its first-ever earnings call yesterday as a public company. CEO Amin Nasser told investors that Aramco is "very comfortable" with oil prices below $30/bbl and highlighted that as in April, the company's supply of oil will be at historically high levels in May. Saudi Arabia's decision to unleash all of its spare capacity has generated a flurry of tanker bookings, driving up the cost of shipping oil. This not only works against the oil storage strategy that major traders implement during periods of contango, but also closes arbitrage opportunities. For example, it is now uneconomical to export US crude to distant destinations, and US exports are likely to plunge 1.0-1.5 mln bpd in April as a result. Furthermore, the recent decision of the US to boost its purchases of oil for its Strategic Petroleum Reserve will certainly provide strong support for WTI relative to Brent. This, together with the coronavirus-driven drop in demand and continuing US shale production growth, is likely to soon result in a vastly oversupplied US market. We note that the EIA yesterday forecast that US tight oil production will grow by 0.018 mln bpd to 9.075 mln bpd in April and estimated that total US oil output is currently at 13 mln bpd. Investors will continue to closely monitor US inventory data, with API set to publish its latest update today at 23:30 Moscow time, followed by EIA data tomorrow at 17:30. This morning, Brent continues to fluctuate within a $30 31/bbl range. We see potential for it to slide into a technical corridor of $27.1-29.8/bbl again this week (as it did yesterday), as the selloff in global markets does not seem to be over. We also note that Brent would face resistance at $34.2/bbl were it to begin recovering amid a possible rebound in stock markets. US February retail sales data will grab some attention today, but it is unlikely to generate much ECIOUS METALS MARKETS IN PANIC MODEPrecious metals that have sizable industrial demand were sold off yesterday on concerns about industrial production. On the day, palladium lost 11.7%, platinum 12.7% and silver 12.3%. The most intense pressure happened during the European trading session, with silver down 22% for a couple hours after 10:00 Moscow time. The trigger for the declines was likely a Chinese industrial output reading published yesterday morning - it was 13.5% lower y-o-y in February, compared with an expected 3% drop. Another reason for the selloff in precious metals was the sharp decline across global financial markets, while investors were trying to decrease the exposure of precious metals to cover margin calls. Investment demand showed considerable weakness, as ETF holdings of precious metals yesterday also fell. Holdings in palladium fell 5% on the day and those in silver 0.6%. Gold prices in comparison were more stable, having retreated just 1% to $1,514/oz. This morning, they are again under pressure and are quoted at $1,483/oz as we write. Over the last couple of days, governments and central banks have announced major measures to minimize the damage to the economy and financial markets from the coronavirus outbreak. Yesterday evening, Trump economic advisor Larry Kudlow said the White House is preparing an economic stimulus package of $800 bln. The scheduled Fed meeting gets underway today, with the decision to be announced tomorrow, followed by a press conference with Chairman Powell. Since the Fed seems to have already deployed most of its monetary policy arsenal, the focus will be on the guidance for the rest of this year. With the gold price at $1,480/oz, we think the negative momentum in gold could continue today, especially after the US session starts. Investment demand for gold was very high in January-February, and it will take time for open positions to be