Commodities Daily - March 24, 2021

> Oil slides further ahead of EIA weekly inventory update. Brent is paring back yesterday's losses as we write despite the API reporting a crude oil stock build, as the Suez Canal has been blocked by a container ship that has run aground. Today, the oil market awaits the EIA weekly inventory update, preliminary DM PMIs for March and US durable goods orders for February. We believe Brent is set to consolidate above $61.4/bbl this afternoon and possibly even target the $62.1-62.7/bbl range. We think it is unlikely to break below the $60.3/bbl support level and slide to the $58.4-59.1/bbl range.> Gold eases as dollar surges, Treasury yields decrease. This morning, gold is quoted near $1,730/oz. Today, investors will eye Fed Chairman Powell and US Treasury Secretary Yellen speaking on Capitol Hill, Markit PMIs for the US and eurozone for March, and US durable goods orders for February. We expect gold to continue to trade sideways today, in a range of $1,720-1,740/oz.> Base metal prices lower yesterday amid rising Covid-19 numbers in Europe and stronger dollar, coal prices up on flooding in Australia, sandstorm in China. The price drops on the LME ranged from 0.96% (zinc) to 2.3% (aluminum). Thermal coal prices are rising due to the flooding in Australia and sandstorm in China. Prices for Australian coal (6,000 kcal/kg, FOB Newcastle) have reached $104.5/tonne, the highest level since 2018.OIL SLIDES FURTHER AHEAD OF EIA WEEKLY INVENTORY UPDATEBrent opened near $64/bbl yesterday before beginning to slide at the start of the European session. Investors continue to reprice this year's demand outlook, which was previously more upbeat and did not account for the latest lockdowns in Europe driven by a third wave of the coronavirus, with new, more easily transmitted variants afflicting the continent. Germany, Europe's biggest oil consumer, has extended its lockdown until April 18, and nearly a third of France entered a month-long lockdown on Saturday following a jump in cases in Paris and parts of northern France. Yesterday, the front-month Brent calendar spread flipped into a small contango (a bearish futures curve structure) for the first time since January. A contango is where front-month contracts are cheaper than future months, and if strong enough they can encourage traders to put oil into storage. We believe this situation will prove temporary, as we anticipate strong backwardation this summer.At midday yesterday, Brent attempted to consolidate around the $62.00/bbl mark and traded there for most of European trading hours and into the Wall Street session. However, it tumbled yet again later in the US trading session and reached an intraday low of $60.30/bbl, as the S&P 500 retreated after Treasury Secretary Janet Yellen told Congress that the US economy remained at risk and that tax rises would be needed to fund Biden's infrastructure plan, which is required to keep the economy "competitive and productive." Brent eventually settled at $60.79/bbl, down $3.83/bbl on the day.Overnight, the API reported that US crude stocks rose by 2.9 mln bbl last week. However, the refined product data was mostly upbeat, showing a 3.7 mln bbl drop in gasoline stocks and a 0.25 mln bbl build in distillate stocks. The EIA weekly inventory report is due today at 17:30 Moscow time. The Bloomberg consensus is for a 1.35 mln bbl crude build, a 1.25 mln bbl increase in gasoline stocks and a 0.45 mln bbl drop in distillate stocks. Brent is paring back yesterday's losses as we write despite the API's reported crude oil stock build, as the Suez Canal has been blocked by a container ship that has run aground, preventing other vessels from using one of the world's most important waterways. About 10% of total seaborne oil trade goes through the Suez Canal, though we think the disruption will be very temporary.Aside from the EIA weekly inventory update, investors will today be looking out for preliminary DM PMIs for March and US durable goods orders for February. Today's eurozone PMIs, especially for the services sector, could underwhelm and provide oil price headwinds, although likely upbeat US PMIs (amid an effective vaccination program, the end to the cold spell in February and Congress passing the latest fiscal stimulus package) and the EIA inventory report are likely to support oil. We anticipate modest crude and gasoline storage draws, with distillates seeing a modest build. We believe Brent is set to consolidate above $61.4/bbl this afternoon and possibly even target the $62.1-62.7/bbl range. We think it is unlikely to break below the $60.3/bbl support level and slide to the $58.4-59.1/bbl range.GOLD EASES AS DOLLAR SURGES, TREASURY YIELDS DECREASE.In the first half of the day yesterday, gold traded near $1,740/oz before sliding below $1,730/oz as EUR/USD retreated to 1.185, its weakest level in two weeks. The DXY continued to rise thanks to a flight to safety amid concerns about more lockdowns across Europe. Meanwhile, the US 10y Treasury yield fell from 1.67% to 1.62%, which helped gold prices eventually to consolidate near the $1,730/oz mark. This came amid Fed Chairman Jerome Powell saying that inflation should pick up this year as the pandemic recedes and consumer activity gets back to normal while downplaying the inflation risks from a potential overheating. Yesterday's data was also supportive for gold. In particular, US new home sales were reported down 18.2% m-o-m in February after a 3.2% rise in January. Overall, the news flow seemed to reassure investors that a tightening of monetary policy might be deemed premature, but the worsening virus situation in Europe led to gold's losses.Today, gold is quoted near $1,730/oz. Comments by Fed Chairman Powell and US Treasury Secretary Janet Yellen could again drive sentiment today, though the second day of scheduled testimony on Capitol Hill tends to provide fewer market-moving headlines. Investors will eye preliminary PMIs for March due from the US and eurozone. The US data is expected to come out very strong amid what seems to be an effective vaccination program, as well as February's cold weather tapering off and the latest fiscal stimulus spending being passed through Congress. By contrast, today's eurozone PMIs, especially for the services sector, could underwhelm. US durable goods orders for February are to be released as well. We expect gold to continue trading sideways today, in a range of $1,720-1,740/oz.BASE METAL PRICES LOWER YESTERDAY AMID RISING COVID-19 NUMBERS IN EUROPE AND STRONGER DOLLAR, COAL PRICES UP ON FLOODING IN AUSTRALIA, SANDSTORM IN CHINATrading on the LME was in the red yesterday. Base metals sold off amid burgeoning fears related to rising Covid-19 numbers in Europe and also due to the stronger dollar. Copper closed 1.4% lower at $8,979/tonne, aluminum shed 2.3% to $2,220/tonne, nickel lost 1.9% to $16,146/tonne, while zinc edged 0.96% lower to $2,838/tonne. In Chile, workers at the Los Pelambres (Antofagasta) copper mine accepted an offer by the company and decided to call off the planned strike. The threat of a strike at the mine, which is responsible for 1.6% of global copper concentrate, was the main factor behind the 4.2% spike in copper prices to $9,144/tonne over March 9-15. Meanwhile, while the Chilean mine strike was being planned, truck drivers in Peru (Peru is responsible for over 10% of global copper production) began a nationwide strike due to rising fuel prices. However, the strike has now ended and, according to the most recent data, practically did not affect deliveries of copper or copper ore. The reduction in risks to copper deliveries from South America gives us grounds to expect somewhat of a correction in copper prices. Meanwhile, China has been hit by the worst sandstorm in a decade. This has been attributed to the damage to water resources caused by coal mining in the Inner Mongolia and Xinjiang regions. This could lead to large-scale inspections of coal enterprises, which could lead to restrictions placed on those found to have committed violations. Given the currently high demand for coal in China this could boost thermal coal prices domestically. Another factor affecting the coal market is the recent flooding in Australia. Australian coal (6,000 kcal/kg, FOB Newcastle) prices have risen by 16.5% since the beginning of the month to reach $104.5/tonne, while import prices to Europe (6,000 kcal/kg CIF ARA) are up 5% to $72.15/tonne.