Commodities Daily - March 22, 2021

> Oil prices stabilize after last week's selloff. This morning, Brent is under pressure. Germany is planning to extend its lockdown for a fifth month today, while investors will eye a speech by Fed Chairman Jerome Powell, US existing home sales and BP's annual report. In our view, at the current price levels investors will continue opportunistic buying amid the upbeat 2H21 market outlook, and we expect Brent to retest resistance at $65.2/bbl.> Gold holds on to weekly gains despite elevated Treasury yields. Gold is trading near $1,730/oz as we write. Today, investors will eye a speech by Fed Chairman Jerome Powell and US existing home sales. We think it is likely to test support near $1,720/oz today; a break of resistance at $1,763/oz is unlikely.> Prices on nickel, aluminum, thermal coal climb higher. Nickel and aluminum prices rose on Friday following the release of data showing a double-digit y-o-y decline in the production of these metals in Russia. Thermal coal prices also rose following a disruption at an Australian port from which 15% of Australian coal exports are shipped.OIL PRICES STABILIZE AFTER LAST WEEK'S SELLOFFAfter plummeting on Thursday from $68/bbl to as low as $61.45/bbl, front-month Brent began to consolidate around $63/bbl during the first half of the day on Friday. As we had noted in our Friday comment, the severe selloff has not changed our broader view on the ongoing oil market rebalancing - we still think that fundamentals and prices will recover this summer (see our latest fundamentals report). The sharp move lower, despite the lack of specifically bearish news, spooked the market and forced participants to dig deep for answers about what caused it. We would like to highlight that unless the US is about to suddenly lift sanctions on Iranian crude exports (which we do not believe is the case), we do not see any material change to the upbeat 2H21 market outlook.Thursday's selloff was driven by the shaking out of financial players, who decided to take profit, combined with a weak physical market. On Thursday, the front end of the WTI futures curve moved into contango, driven by lingering refinery shutdowns from the Texas "freeze-offs," which started to weigh on market sentiment, while faltering vaccine rollouts in Europe brought back concerns that crude might again have a demand problem. In addition, positioning was overcrowded on the long side, so the selloff proved deep after technical levels were triggered.The physical market should remain weak a little longer, as we are currently going through a period of heavy inventory destocking amid the peak 2Q21 refinery maintenance. However, our confidence in our bullish view on 2H21 is bolstered by steadily improving demand, despite the fact that European demand might remain weaker for longer due to problems with vaccine rollouts. Chinese demand, meanwhile, did not fall as much as expected during the Lunar New Year holidays and is recovering quickly, while in the US, the latest fiscal stimulus and rapid vaccinations are creating upside for US demand. In addition, the pullback in prices could entice China to come back to the market for purchases, while it should make OPEC+ and Saudi Arabia even more cautious about raising production at the upcoming April 1 meeting.This morning, Brent is under pressure. Germany is planning to extend its lockdown for a fifth month today, while investors will eye a speech by Fed Chairman Jerome Powell, US existing home sales and BP's annual report. In our view, at the current price levels investors will continue opportunistic buying amid the upbeat 2H21 market outlook, and we expect Brent to retest resistance at $65.2/bbl. This week, potential pandemic and vaccine disruptions, as well as uncertainty over US-China relations, are the major risks. The appetite of Chinese refiners for barrels in the physical market will be closely watched after purchases flagged recently amid a surge in Iranian exports.GOLD HOLDS ON TO WEEKLY GAINS DESPITE ELEVATED TREASURY YIELDSGold rose to $1,745/oz on Friday, while EUR/USD edged down from 1.192 to 1.190 ahead of the weekend. The 10y US Treasury yield climbed to almost 1.75% in the afternoon after the Fed opted against extending a pandemic-era regulatory break for banks that allowed them to exclude Treasuries from their supplementary leverage ratio calculation, the upshot being that banks will now have to go back to holding more loss-absorbing capital against Treasuries. We believe this will pressure gold, as it hints at faster than expected monetary policy tightening. However, Federal Reserve Chairman Jerome Powell reiterated in a Wall Street Journal editorial on Friday that the central bank will continue to provide aid to the economy "for as long as it takes," as the recovery is far from complete. This ultimately helped bullion to hold on to a weekly gain of $20/oz, despite Treasury yields trading near their highest level in more than a year. During today's Asian trading session, gold has declined to $1,730/oz as investors have opted for alternative safe-haven assets such as the dollar and bonds after Turkey's abrupt decision to replace its central bank head with a critic of high interest rates sparked financial uncertainty. Pressure has also come from dollar strength amid faltering vaccine rollouts in Europe and growing concerns that the EU is experiencing a third wave. Today, investors will eye a speech by Fed Chairman Jerome Powell and US existing home sales. Must-watch events for this week include testimonies by Powell and Treasury Secretary Janet Yellen on their pandemic policies on Tuesday and Wednesday, US new home sales data, US durable goods orders, US and eurozone Markit PMIs, US GDP for 4Q20, US PCE data and personal income and spending for February. We think gold is likely to test support near $1,720/oz today; a break of resistance at $1,763/oz is unlikely.PRICES ON NICKEL, ALUMINUM, THERMAL COAL CLIMB HIGHERCopper prices held steady at $9,056/tonne on Friday, while aluminum rose 2.23% to $2,266/tonne, nickel climbed 1.46% to $16,299/tonne and zinc advanced 1.6% $2,837/tonne. Nickel and aluminum prices were supported by data showing a sharp y-o-y decline in the production of these metals in Russia - nickel output was down 11.6% y-o-y in 2m21, while aluminum output was down 10.0%. However, we do not think this will have a lasting effect, as both the nickel and aluminum markets are likely to be in surplus in 2Q21-4Q21, leading to an increase in inventories and decline in prices.Thermal coal prices rose 4.66% to $69/tonne in Europe (6,000 kcal/kg CIF ARA) and 4.5% to $93/tonne in Asia (6,000 kcal/kg FOB Newcastle). The main reason was the stoppage of a coal loader at a coal terminal in Australia. The loader handled 15% of the thermal coal exported from Australia. The repairs are expected to take two weeks. After that, there should be a recovery in thermal coal exports from Australia and a decline in coal prices.