Commodities Daily - March 2, 2021

> Oil slides ahead of main OPEC+ meeting on Thursday; Technical Committee meeting eyed today. After trading near $66/bbl yesterday, Brent prices slid yesterday to $63/bbl amid a downbeat Chinese manufacturing PMI reading and the pricing in of likely increases in OPEC+ production in 2Q21. This morning, Brent dipped to as low as $62.5/bbl as global coronavirus cases last week rose for the first time in almost two months, according to the WHO. Today, investors will eye the OPEC+ Joint Technical Committee meeting, which reviews market conditions and members' compliance with supply agreements. In our view, Brent is likely to break below $62.5/bbl today, though we doubt it will slide all the way to the next support level at $61.1/bbl, as the OPEC+ decision to boost production in 2Q21 has likely been priced in. > Gold slides despite stabilizing Treasury yields. Yesterday, gold came under pressure from a strong ISM US manufacturing PMI reading, which caused EUR/USD to slide. This morning, gold slid toward the $1,710/oz mark despite the recent stabilization in Treasury yields amid reassuring remarks from central banks. Today will see eurozone CPI data. This week, investors will eye Fed Chairman Jerome Powell's speech on Thursday and the US jobs report on Friday. We think gold may be set for a test of support at $1,700/oz today. A drop below this would clear the way for a fall into a range of $1,670-1,690/oz. We see consolidation above $1,725/oz as unlikely.OIL SLIDES AHEAD OF MAIN OPEC+ MEETING ON THURSDAY; TECHNICAL COMMITTEE MEETING EYED TODAYAfter rising to an intraday high of $65.9/bbl at the start of the day yesterday, front-month Brent began to slide, first dipping below $65/bbl in the late European trading hours and then toward $63/bbl during the US session. It eventually settled at $63.69/bbl, fixing $2.44/bbl below the previous settlement. This came despite strong positive momentum in the S&P 500, which registered the biggest one-day gain since June. US equities were rebounding sharply after sliding last week, resilient in the face of the higher Treasury yields, the impact of which has been worrying investors. In recent months, it has been rare for oil prices to decouple from the S&P 500, and it was fundamental factors that had a strong negative impact yesterday - in particular, investors pricing in the likely OPEC+ decision to start boosting production in 2Q21 at the major meeting coming up on Thursday. We reiterate our view that OPEC+ members are likely to agree to increase production by 1.4 mln bpd in April, with Saudi Arabia likely to end its unilateral 1.0 mln bpd cut, in line with the initial plan, and quotas to be increased. The policy of limiting quota changes to a maximum of 0.50 mln bpd per month remains in force, but the next one or two increases will be slightly smaller than this ceiling, as Russia and Kazakhstan have received a 0.13 mln bpd "advance" on their quota increase over February and March, as agreed to back in January. Two further quota increases are likely to follow over May and June, together adding just over 0.90 mln bpd, which would bring the group up to phase-three quota levels (5.7 mln bpd below the OPEC+ 42.1 mln bpd crude production baseline) in June, five months later than the original schedule when the OPEC+ deal was announced last April. The bottom line is that OPEC+ will likely bring back 2.35 mln bpd of production in 2Q21 regardless of the final details. In our view, the priority for OPEC+ right now is to agree on a path to phase-three production levels, though many members will soon want to start discussing how to taper the cuts further to meet rising demand. Overall, the pace of the demand recovery is likely to outstrip the pace of OPEC+ production increases, resulting in almost constant inventory drawdowns in 2H21, which should remain the key supportive factor for oil prices this year.This morning, Brent dipped to as low as $62.5/bbl as global coronavirus cases last week rose for the first time in almost two months, according to the WHO. Today, investors will eye the OPEC+ Joint Technical Committee meeting, which reviews market conditions and members' compliance with supply agreements. In our view, Brent is likely to break below $62.5/bbl today, though we doubt it will slide all the way to the next support level at $61.1/bbl, as the OPEC+ decision to boost production in 2Q21 has likely been priced in.GOLD SLIDES DESPITE STABILIZING TREASURY YIELDSGold was trading near $1,750/oz early yesterday but failed to consolidate above this level and ended up sliding to $1,725/oz. Yesterday's trading suggests that the 10y US Treasury yield may have stabilized at around 1.4%, after a strengthening dollar took its toll (EUR/USD slid from 1.210 to 1.203 yesterday). The ISM US manufacturing PMI printed at 60.8 in February, the highest since September 2018. This made investors more confident in the US economic recovery and weighed on demand for safe-haven assets, including gold, with additional pressure coming from the strong dollar. In a speech yesterday, ECB President Christine Lagarde mentioned that the ECB will make sure not to increase borrowing costs prematurely for firms and households struggling to cope with the pandemic-induced recession. The ECB's commitment to keeping rates at record-low levels failed to support gold though. During the Asian trading session today, gold dipped to $1,710/oz, reaching its lowest level in more than eight months. It is hovering around $1,720/oz as we write. Today's February eurozone CPI data could help gold prices recover somewhat. The gold market could also get a boost from Jerome Powell's speech this Thursday, where we expect the Fed chairman to reaffirm the central bank's ultra-soft policy stance, and then the February US jobs report this Friday. The US Senate will begin debating over President Joe Biden's $1.9 trln coronavirus relief bill this week, which may generate some turbulence in the gold market. We also note that gold prices may find support from Covid-19 headlines, as the WHO just announced the first net increase in reported cases in two months. Still, we think gold may be set for a test of support at $1,700/oz today. A drop below this would clear the way for a fall into a range of $1,670-1,690/oz. We see consolidation above $1,725/oz as unlikely.