Commodities Daily - March 23, 2020

> Oil mirrors stock market volatility amid further talk of US intervention. This morning, Brent plummeted to $24.7/bbl at the Asian open amid a plunge in stocks on further self-isolation measures across the globe and the failure of a procedural vote in the US Senate on a fiscal stimulus plan. It has since moved back above $26/bbl. Today, Russian Energy Minister Alexander Novak is set to meet with Russian oil executives. We do not expect this meeting to result in a change in Russia's resolute stance in its dispute with Saudi Arabia. However, it is likely that some companies will push for a return to negotiations with the rest of OPEC+. In our view, Brent will probably retest technical support at $25.3/bbl at some point today and could even fall into the $20.0-$22.7/bbl range later in the week.> Gold prices under pressure amid strong growth in coronavirus cases and downbeat comments from the Fed's Bullard. Hedge funds sharply reduced positioning in gold as of the week ending March 17. ETFs, meanwhile, reduced their gold holdings by 0.8% on Friday. Gold is currently trading under $1,500/oz. Today, an emergency teleconference of G20 finance ministers will be held at 16:45 Moscow time, while the Senate will see a vote on a fiscal stimulus bill. The Fed's Chicago business activity index will be released today. If sentiment remains negative, we could see gold move down to its next support level at around $1,450/oz today. OIL MIRRORS STOCK MARKET VOLATILITY AMID FURTHER TALK OF US INTERVENTIONMirroring an uptrend in S&P 500 futures, front-month Brent rallied $2.8/bbl to $31/bbl in the first half of Friday. However, it began to slide when global stocks started to pull back. It settled at $26.98/bbl, fixing $1.49/bbl below the previous settlement. One reason for the retreat on Wall Street was an order from the governor of New York for residents to stay home. A lack of clarity on stimulus in the US and new restrictions to fight the spread of Covid-19 in key markets also hurt sentiment. After sliding $10/bbl in the first half of last week to as low as $24.5/bbl on Wednesday, Brent has been hovering in a $25-31/bbl range as stock markets also struggle to find direction.Meanwhile, oil investors continue to follow the latest developments in the Saudi-Russia price war. Recently, attempts by the US to halt the ongoing market downturn, which threatens its shale industry, have been in focus. On Friday, the spotlight was on the Texas Railroad Commission, the oil and gas industry regulator in the state of Texas whose three-member commission issues permits for drilling and operating wells, as well as for burning the unutilized gas that comes as a byproduct of drilling for crude. By restricting its issuance of permits, the commission could curtail oil production in Texas, home to the Permian Basin, which produces 4.75-4.80 mln bpd, which is more than Iraq, OPEC's second largest producer (4.6 mln bpd in February). Ryan Sitton, who is one of the agency's three commissioners and was invited to speak at the OPEC meeting in June, wrote that in theory Texas could cut production by 10% if Saudi Arabia and Russia were willing to do the same (the last time the commission imposed limits for Texas producers was in 1973). However, the chances of this happening are very slim, as tighter regulation in Texas would trigger more activity in neighboring New Mexico, since the US is by and large a free market. Moreover, Sitton's proposal to restrict output is being criticized by representatives of regulators, explorers and drillers, who are mostly free-market conservatives opposed to centralized decision-making. The commission itself has also highlighted that it does not have the authority to implement statewide production restrictions for the thousands of producers operating in Texas. We stick to our view that President Donald Trump will probably wait until later in the year to step in and support the US shale industry (likely through diplomacy with the Saudis), giving the US economy some time to benefit from lower fuel prices. A recent Reuters story seemed to confirm our view. It said that a senior US Energy Department official would be sent to Saudi Arabia for at least several months to work with the State Department and an existing energy attache there.This morning, Brent plummeted to $24.7/bbl at the Asian open amid a plunge in stocks on further self-isolation measures across the globe and the failure of a procedural vote in the US Senate on a fiscal stimulus plan. It has since moved back above $26/bbl. Today, Russian Energy Minister Alexander Novak is set to meet with Russian oil executives. We do not expect this meeting to result in a change in Russia's resolute stance in its dispute with Saudi Arabia. However, it is likely that some companies will push for a return to negotiations with the rest of OPEC+. In our view, Brent will probably retest technical support at $25.3/bbl at some point today and could even fall into the $20.0-$22.7/bbl range later in the LD PRICES UNDER PRESSURE AMID STRONG GROWTH IN CORONAVIRUS CASES AND DOWNBEAT COMMENTS FROM THE FED'S BULLARDThe coronavirus continues to spread rapidly in the US and Europe and even German Chancellor Angela Merkel has gone into self-isolation. Meanwhile, on Friday St Louis Fed President James Bullard said that unemployment in the US in 2Q20 could reach 30%, an outlook that is probably based on local data from various states. The state of Ohio has seen a significant increase in unemployment claims. Such a trend will likely be seen nationwide when the next batch of jobless claim figures are released this week. In light of all of this, gold prices remain under pressure. As we wrote on Friday, gold has not managed to hold at the $1,510/oz level, and it is currently trading at around $1,490/oz. Investors have been closing both long and short positions in gold. According to CFTC data for the week ending March 17, hedge funds' long positions in gold dropped by 44%, while shorts were down 24%. The overall net decrease in long contracts was 31%. The data on ETF holdings has been similarly discouraging. On Friday, gold ETFs cut their positions in gold by 0.8%, which marked the largest outflow of investment in 11 months. Investors seem to be quite concerned about the trouble the US Congress has been having passing a fiscal stimulus bill due to ongoing disagreement between Republicans and Democrats. On Friday, a bill containing a package of economic stimulus measures was put to a procedural vote in the US Senate and failed to collect the needed 60 votes. The sides have gotten back to work on the bill, which should see another vote today.The spotlight today will be on a conference call to be held by G20 finance ministers at 16:45 Moscow time and the vote on the stimulus bill in the US Senate (probably at about the same time). The highlight data-wise is the Chicago Fed's US national activity index. If the mood in global markets remains downbeat, gold could be pushed to a test of support at $1,450/