Commodities Daily - March 22, 2022

> Oil prices keep rising on supply fears. We think Brent could rise to $120/bbl today on persistent supply risks. Oil investors are eyeing day two of the FT commodities event in Switzerland and the weekly update from the API on US oil and refined product inventories.> Gold advances on rising inflation expectations. Gold firmed from $1,920/oz to $1,935/oz yesterday, while the 10y US Treasury yield increased from 2.15% to 2.29%. Gold is trading near $1,935/oz as we write. Today will see the publication of the Richmond Fed manufacturing activity index for March. We expect bullion to trade in a $1,920-1,940/oz corridor today.> Base metals mixed; decline in thermal coal prices slows. Base metals traded mixed yesterday. While nickel futures again plunged to their down-limit, aluminum outperformed after Australia banned alumina exports to Russia. The decline in thermal coal quotes slowed, as the persisting supply risks imply potential for a rebound in the short term.OIL PRICES KEEP RISING ON SUPPLY FEARSYesterday, Brent rallied almost $10/bbl to as high as $116.8/bbl. Saudi Arabia said that it cannot be held responsible for any drop in oil output if it doesn't get more help to deter attacks from Yemen. This came after Houthi rebels attacked at least six sites across Saudi Arabia over the weekend, including some run by Aramco. In particular, attacks on the Yasref and Jazan refineries risk tightening the European diesel markets further at the start of 2Q22. Production at the 0.4 mln bpd Yasref refinery has been temporarily curtailed, according to company statements. The extent of the damage and expected downtime remains unclear. Saudi Aramco announced that it would buffer supplies to customers by drawing on inventories. However, inventories at the refinery will not be able to cover a prolonged outage and will also need to be rebuilt, thus lowering future exports. If the outage ends up being longer, this risks further diesel supply bottlenecks for Europe, as Aramco prioritizes existing customers. The US and Europe have urged Saudi Arabia, the world's top oil exporter, and other OPEC members to raise output faster following crude's blistering rally. But the kingdom and neighboring UAE (which hold the most spare capacity) have said the US must do more to foil Houthi strikes, including by boosting the region's missile-defense capabilities. Yesterday, Brent eventually settled at $115.62/bbl, fixing $7.69/bbl above the previous settlement. This morning, it has rallied to $119/bbl on signs that the EU may be edging closer to a ban on Russian crude imports, although there's a lack of unanimity among EU members about targeting Russian oil (Germany and Hungary are currently against it) and any decision would need to be agreed by all 27 states. Europe's leaders are set to meet on Thursday. We think Brent could rise to $120/bbl today on persistent supply risks. Oil investors are eyeing day two of the FT commodities event in Switzerland and the weekly update from the API on US oil and refined product LD ADVANCES ON RISING INFLATION EXPECTATIONSGold rose from $1,920/oz to $1,935/oz yesterday, while the 10y US Treasury yield increased from 2.15% to 2.29%. EUR/USD eased from 1.104 to 1.102. Rising oil prices and commodities prices in general, as reflected in the Bloomberg commodity index, boosted inflation expectations and supported gold following the moderate outcome to the recent Fed meeting. In addition, rising demand from retail investors (ETF volumes increased by almost 11 tonnes yesterday) also created a tailwind for bullion. On the data front, the Chicago Fed national activity index came in slightly below the consensus, indicating a slowdown in the US economic recovery and proving positive for gold. Yesterday's focus was on a speech by Fed Chair Jerome Powell, who provided something of a surprise by signaling that the Fed could raise the rate by 50 bps at the next meeting, which would represent a quicker tightening than expected following his comments at the previous meeting. Powell also expressed a readiness to lift rates above the neutral level if necessary and noted inflationary risks stemming from the geopolitical situation. Despite these hawkish comments, inflation concerns supported gold.Gold is trading near $1,935/oz as we write. Today, the market awaits the Richmond Fed manufacturing activity index for March. The consensus is calling for a slight increase in the index, which would be unlikely to pressure gold today. We would not rule out a correction in anticipation of another speech by Powell tomorrow and the ongoing rise in long-dated US Treasury yields, which is rendering non-yielding gold less attractive for investors. We expect bullion to trade in a $1,920-1,940/oz range SE METALS MIXED; DECLINE IN THERMAL COAL PRICES SLOWSBase metals traded mixed yesterday. The 3m LME contract for copper slipped 0.35% (-$36/tonne from the previous day's close) to settle at $10,295/tonne, aluminum surged 4.14% (+$140/tonne) to $3,521/tonne, nickel plunged 14.4% (-$5,332/tonne) to $31,583/tonne and zinc rose 2.98% (+$114/tonne) to $3,940/tonne.While nickel futures again reached their down-limit yesterday, falling 15%, aluminum was an outperformer. Aluminum futures on the LME surged almost 5% after Australia banned alumina exports to Russia, which means that the supply of a significant portion of the feed for Russian aluminum smelters is now at risk. Aluminum is trading toward the upper end of a narrow range of $3,350-3,550/tonne, and the factors seem to be skewed to the upside given the prevailing risks on the supply side. Supply chain disruptions, a potential decrease in Chinese output amid the new lockdowns and uncertainty in the natural gas market are all sources of potential upside for aluminum prices over the medium term.Although the fall in thermal coal quotes has slowed down, prices are still in decline, with Newcastle FOB Australia and API2 currently at $220/tonne and $225/tonne, respectively. Chinese authorities are tightening their grip over the domestic coal market. For example, the National Development and Reform Commission has stepped up its campaign to rein in prices and starting on May 1 will require new contracts to be signed at a new capped price between $90/tonne and $120/tonne. This move is part of the ongoing efforts of China, the world's largest consumer of coal, to minimize its dependence on imports. While this development will weigh on prices, we believe there is potential for a rebound in the short to medium term, as the global market remains tight, with seaborne shipments now in extremely high demand because of Europe's aim to replace Russian