Commodities Daily - March 18, 2021

> Oil slides after IEA and EIA reports, but Fed provides some support. This morning, Brent is trading near $67.5/bbl, supported by a global rally, as the Fed's projections for interest rates remain near zero through 2023. Today, investors will eye the BOE rate decision, US weekly initial jobless claims and the Philadelphia Fed business outlook survey. In our view, given a slight reversal in risk sentiment this morning, Brent remains exposed to a correction toward the $65.8-66.9/bbl technical range despite having rebounded off its upper bound yesterday. Under a very unlikely upbeat scenario, in our view, Brent could break above $68.7/bbl resistance and toward the $69.2-70/bbl technical range.> Gold rises 1% as Fed remains dovish. Yesterday, gold traded sideways within a $1,720-1,740/oz range ahead of the Fed decision. The central bank continued to project near-zero interest rates at least through 2023, even as it upgraded its economic outlook. EUR/USD rose close to 1.20, paving the way for gold to make a push toward $1,750/oz, where it is trading as we write. The highlight on today's macro calendar is US initial jobless claims. We expect gold to trade in the $1,740-1,760/oz range today.> Fed outcome contributes to positive mood in non-ferrous metals markets yesterday. Copper rose 1.17% to $9,065/tonne, aluminum 1.14% to $2,227/tonne and zinc 0.6% to $2,830/tonne. Nickel, on the other hand, fell 0.5% to $16,069/tonne. In Chile, a planned strike at a major copper mine has been postponed. Meanwhile, China has announced new restrictions on its metals industry.OIL SLIDES AFTER IEA AND EIA REPORTS, BUT FED PROVIDES SOME SUPPORTAhead of the European trading session, front-month Brent was trading near $68.8/bbl as oil investors awaited the release of the monthly IEA oil market report. On the positive side, the IEA's new market outlook contained a slight upward revision to its global oil demand estimate for this year (up 0.05 mln bpd to 96.49 mln bpd, 5.46 mln bpd higher than the 91.03 mln bpd average in 2020), as consumption was stronger than the agency had expected in 1Q21, supported by cold weather and improved industrial activity in the US. Demand was revised upward for the US, India and Brazil. This was partly offset by downward revisions to European and Chinese demand. The agency expects 4Q21 demand to rise by 5.26 mln bpd from 1Q21 and average 99.20 mln bpd, as the economic recovery and vaccinations gather pace and containment measures are eased. The non-OPEC supply estimate for 2021 was lowered by 0.11 mln bpd and, surprisingly, the US led the downward revisions as freezing temperatures led to lower production in February. Preliminary data for February showed total OECD oil and refined product stocks fell by 52.6 mln bbl m-o-m to 2,970 mln bbl. This means that the total liquids overhang fell by 46 mln bbl m-o-m to 50 mln bbl versus the 2015-19 five-year average (which OPEC+ is targeting for inventory normalization). Despite the various rather upbeat revisions, the oil price began to slide following the release, as the IEA highlighted that oil markets are not on the verge of a new super-cycle as plentiful supplies mean any concerns of a shortfall are misguided. Another negative was the IEA saying that gasoline demand may never recover to pre-pandemic levels.Ahead of the EIA weekly oil and refined product inventory update, Brent was trading near $67.6/bbl. It showed yet another build in crude oil stocks, this time by 2.4 mln bbl to 500.8 mln bbl. This came amid a 0.11 mln bpd decrease in exports to 2.52 mln bpd and as refinery inputs remain low despite showing strong signs of recovery. All in all, a 1.12 mln bpd increase in refinery inputs to 13.43 mln bpd and a 0.33 mln bpd decrease in imports were insufficient to offset the overall build. Crude oil production remained unchanged at 10.9 mln bpd. Next week, a crude oil stock build is much less likely, as refinery inputs should keep normalizing. The refined product data, meanwhile, was unexpectedly downbeat. Gasoline stocks were up 0.47 mln bbl to 232.1 mln bbl, while distillate stocks increased 0.25 mln bbl to 137.7 mln bbl. Gasoline demand fell w-o-w amid the snow and stormy weather in the Rockies and Midwest. The four-week average is a better proxy for gasoline consumption, and it was essentially level at 8.1 mln bpd. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) were up 3.59 mln bbl also amid a 1.86 mln bbl build in the "other oils" category. Following this downbeat release, Brent slid to slightly below $67/bbl.Later in the day, Brent pared its losses, eventually settling at $68.0/bbl, $0.39/bbl below the previous settlement. This was due to a global market risk-on rally following the Fed meeting, which we discuss in the gold section below. Today, investors will eye the BoE rate decision, US weekly initial jobless claims and the Philly Fed index. In our view, given the slight reversal in risk sentiment this morning, Brent remains exposed to a correction toward the $65.8-66.9/bbl technical range, having rebounded off its upper bound yesterday. In a very unlikely upbeat scenario, Brent could break above $68.7/bbl resistance and toward the $69.2-70.0/bbl technical range.GOLD RISES 1% AS FED REMAINS DOVISHYesterday, gold traded sideways within a $1,720-1,740/oz range ahead of the Fed decision. It moved closer to the lower end of this range as anticipation grew and the US 10y yield rose to 1.68%. EUR/USD followed a similar trajectory in the lead-up to the decision. The Fed's updated economic projections contained a forecast of 6.5% GDP growth this year, upgraded because of the massive fiscal stimulus now on the way and the relative success of vaccinations. While inflation is expected to jump to 2.4% in 2021, above the central bank's 2% target, Powell said that this would be viewed as a temporary surge that would not be enough for the Fed to back down from its pledge to keep rates near zero. Powell also noted the "strong bulk" of the policy-setting FOMC does not anticipate an increase in rates until at least 2024, and he added that it was even too soon to talk about scaling back the $120 bln of monthly Treasury and mortgage-backed security purchases. All of this pushed gold to $1,745/oz, where it consolidated, while EUR/USD rose from around 1.19 toward 1.20 and the US 10y Treasury yield remained near 1.66%. As for yesterday's macro data, the eurozone CPI printed at 0.2% m-o-m in February, while US housing starts fell 10.3%. Neither data point had much of an impact on gold.Gold prices are hovering near $1,750/oz as we write this morning, having gained a firm foothold above the previous resistance level of $1,740/oz. Meanwhile, the US 10y yield is still trading close to 1.66%. We think gold is likely to consolidate in the $1,740-1,760/oz range, as we do not see any triggers for further gains. The highlight on today's macro calendar is US initial jobless claims. If the data indicates significant improvement in the labor market, we would expect gold to move toward the lower end of the aforementioned range.FED OUTCOME CONTRIBUTES TO POSITIVE MOOD IN NON-FERROUS METAL MARKETS YESTERDAYThe backdrop for non-ferrous metals yesterday was generally positive, supported by the outcome of the Fed meeting. Copper rose 1.17% to $9,065/tonne, aluminum 1.14% to $2,227/tonne and zinc 0.6% to $2,830/tonne. Nickel, on the other hand, fell 0.5% to $16,069/tonne. The planned strike at Antofagasta's Los Pelambres copper mine in Chile, which supplies 6% of Chile's total copper output, has been postponed, and a new round of negotiations has begun. Antofagasta made some concessions to the union yesterday in order to prevent the strike that was scheduled to start today. Negotiations are likely to continue until the end of this week. If a strike does not start before next week, we are likely to see a correction in copper prices. The collective bargaining agreements expire this year for workers at enterprises in Chile, which account for 20% of the world's copper production. The current high copper prices have increased the likelihood of strikes, as they give unions the opportunity to try to improve the working conditions of miners. Obviously, disruptions in copper production would only provide further support to prices.Meanwhile, in China there has been a series of reports since the beginning of March about new restrictions on the metals sector aimed at helping the country meet its CO2 emissions targets. Earlier, it was announced that there would be cutbacks on steel production and aluminum smelting in Tangshan and Inner Mongolia, two industrial centers in China. Yesterday, it was reported that there would also be restrictions on zinc plants in Inner Mongolia that will reduce the province's zinc production in 2Q21 by 20% (by 32 kt), which would lower monthly zinc production in China, which accounts for half of the world's zinc smelting, by 2%. There has also been chatter in the markets that the restrictions could be extended. All in all, the development is positive for zinc prices.