Commodities Daily - March 17, 2022

> Oil stabilizes following IEA report, EIA inventory data and Fed meeting. Today, we would expect Brent to continue trading near the $100/bbl mark. In focus will the Bank of England rate decision, US February industrial production data and for any possible progress in the Russia-Ukraine talks.> Gold firms in wake of FOMC meeting. Gold advanced from $1,920/oz to $1,950/oz yesterday, while the 10y US Treasury yield nudged up from 2.15% to 2.18%. Gold is trading near $1,930/oz as we write. Today, the market awaits US industrial production and the Philadelphia Fed business outlook survey for March. We expect bullion to trade in $1,920-1,940/oz range today.> Nickel trading reopens on the LME; base metals touch support levels; thermal coal falls. Base metals traded mixed yesterday, with prices moving close to technical support levels and finding new equilibrium points. Nickel trading on the LME opened limit-down, as was expected, and is likely to remain extremely volatile in the days to come. Thermal coal futures continued to fall on concerns of sagging demand amid a resurgence in Covid-19 cases in China. However, we expect the rebalancing of the seaborne thermal coal market to be the main driver for prices in the short to medium term.OIL STABILIZES FOLLOWING IEA REPORT, EIA INVENTORY DATA AND FED MEETINGYesterday, after gaining $4.3/bbl to $103.7/bbl, Brent started to slide, tumbling to as low as $96.9/bbl. This came amid a mixed EIA inventory report, Fed rate hike and as Libya called on OPEC to accelerate oil production increases. Also, UK Prime Minister Boris Johnson said after a meeting with the Saudi crown prince that he's optimistic that the kingdom may raise its output, although he received no guarantee. However, first to be digested yesterday was the monthly IEA report. The agency highlighted that Russia's oil output may slump by 3 mln bpd to 8.6 mln bpd next month, further squeezing a world market already strained by the post-pandemic rebound in demand. The IEA also noted that, instead of previously anticipated surpluses, world markets now face a shortfall in the next two quarters, which will force developed nations to further deplete oil inventories that are already at their lowest since 2014. Another important highlight was that the IEA slashed its forecasts for demand growth in 2022 by 0.95 mln bpd (total demand is now projected at 99.70 mln bpd in 2022, an increase of 2.11 mln bpd from 2021), as the inflationary pressure from elevated commodity prices depresses growth. Normally, such a steep revision to the demand forecast would dominate the report, but the changes to the supply outlook are even bigger. Projections for non-OPEC production, which includes Russia, were cut by 2.1 mln bpd for the year, double the reduction to the demand-growth estimate.As for the weekly EIA inventory report, US crude oil inventories rose by 4.35 mln bbl, above market expectations, with Cushing also showing a build, the first of this year. This could be the result of lower refinery runs in the Midwest. Exports, meanwhile, rose last week, nearing the 3 mln bpd mark. Production, on the other hand, was stable at 11.6 mln bpd. There's no sign yet that record pump prices are causing motorists to cut back on their driving. Weekly gasoline demand, which measures deliveries from the primary supply chain of refineries and wholesale terminals, rather than sales at the pump, continues to track five-year average levels. Distillate demand meanwhile has come down off the highs, with the four-week average sinking to the lowest since mid-January. That's still well above historical levels for this time of year, so it is not necessarily a sign of demand destruction.This morning, Brent is paring back yesterday's losses, trading near $100/bbl. Investors continue to focus on the risks of supply disruptions. Today, we would expect Brent to continue trading near the $100/bbl mark. In focus will be the Bank of England rate decision, US February industrial production data and any possible progress in the Russia-Ukraine LD FIRMS IN WAKE OF FOMC MEETINGGold jumped from $1,920/oz to $1,950/oz yesterday, while the 10y US Treasury yield nudged up from 2.15% to 2.18%. EUR/USD firmed from 1.097 to 1.103, creating a tailwind for bullion. The focus was on the US FOMC meeting and Fed Chair Jerome Powell's press conference. The outcome was in line with expectations, with members voting for a 25 bp hike, the first since 2018. The updated dot plot suggests that the rate could rise to 2% by the end of this year and 3% by the end of 2023. There were also changes to the economic projections. The GDP growth projection for 2022 has been cut to 2.8% from 4%, while PCE inflation is now expected to hit 4.3% this year (up from the previous expectation of 2.6%), 2.7% in 2023 (up from 2.3%) and 2.3% in 2024 (up from 2.1%). The change in expectations is quite significant, especially for 2022. The figures also contain upside risks. In his speech, Powell signaled that the Fed will begin reducing its balance sheet in May. He noted that the US economy is strong but that geopolitical risks are creating uncertainty, which in the short term could be reflected in further price growth and a decline in economic activity. The FOMC meeting provided positive momentum for gold, which had dropped to $1,900/oz ahead of the event but swiftly returned to the $1,930/oz level afterward amid the expected decisions and revised inflation and economic growth forecasts. US retail sales for February came in lower than expected and provided an additional tailwind for bullion.Gold is trading near $1,930/oz as we write. Today, the market awaits US industrial production and housing market data for February, the Philadelphia Fed business outlook survey for March and weekly initial jobless claims. The spotlight has again turned to geopolitics, and bullion's safe-haven demand will be the key driver until the situation de-escalates. We expect a mixed picture on the macroeconomic front and see bullion trading in $1,920-1,940/oz range CKEL TRADING REOPENS ON THE LME; BASE METALS TOUCH SUPPORT LEVELS; THERMAL COAL FALLSBase metals traded mixed yesterday. The 3m LME contract for copper closed 1.51% higher (+$150/tonne from the previous day's close) at $10,054/tonne, aluminum dropped 0.58% (-$19/tonne) to $3,259/tonne, nickel plunged 5.09% (-$2,442/tonne) to $45,590/tonne and zinc rose 0.28% (+$11/tonne) to $3,809/tonne.When nickel trading resumed on the LME yesterday, the 3m contract fell by the maximum amount allowed at the very start of the trading session, as was expected, and settled at around $45,600/tonne. Volatility in the nickel market is likely to remain extreme in the days to come, with trading opening limit-down over the next few sessions. Meanwhile, the rest of the base metals fell close to technical support levels yesterday (the 50-day moving averages), though some have been able to recover (including copper). We believe these support levels are strong enough to prevent prices from falling further in the weeks to come, as the risks on the supply side remain relevant given the geopolitical backdrop. Although investors are concerned about the effect of lockdowns in China on metals demand, there are signs that more monetary support for the economy is on the way. Yesterday, reports about a meeting of top economic officials in China helped boost sentiment in the Chinese market, as many market participants began to expect another interest rate cut in the near future. Newcastle FOB Australia thermal coal futures have fallen as much as 24% since the start of the week and are quoted at $235/tonne as we write. This has been the result of a few glimmers of hope with regard to the ongoing geopolitical negotiations, as well as the resurgence in Covid-19 cases in China, which represents a material risk to thermal coal demand. Meanwhile, in an effort to reduce its dependence on Russian coal, Europe is actively seeking out long-term supply deals with Australian miners. Although coal is currently in high demand in the Asia Pacific region, Australian miners have some spare capacity and are thus able to meet some of the incremental demand from Europe. We believe the rebalancing of the seaborne thermal coal market will need time, so we expect prices to remain supported in the short to medium