Commodities Daily - March 25, 2020

> Oil consolidates as stocks rally; EIA weekly inventory data eyed today. We expect the EIA to report a crude inventory build of 1-2 mln bbl on seasonally subdued refinery runs and weaker exports. The rate at which refined product stocks have been seasonally drawing is likely to ease, reflecting emerging weakness in motor fuel demand, which looks certain to plummet in weeks ahead. Should the stock market rally continue, it would at best, in our view, support Brent to test resistance at $28.7/bbl, an unlikely break above that potentially leading to $29.8/bbl. However, we think the deteriorating oil market fundamentals should be a stronger factor for Brent again today, pressuring it toward $27/bbl.> Gold experiencing elevated volatility on low volumes. Gold opened moderately higher yesterday and broke above the $1,600/oz mark to close up 5.1%. Negative macro data from the US and Europe had little impact on gold quotes, as all eyes were on the approval process for the US stimulus program. Today, US mortgage application data, durable goods orders and the FHFA house price index will be released. Gold is trading at $1,598/oz as we write, but we expect it to retreat to $1,575/oz if today's data is weak.OIL CONSOLIDATES AS STOCKS RALLY; EIA WEEKLY INVENTORY DATA EYED TODAYHaving gained $1/bbl overnight into the morning yesterday, front-month Brent began to consolidate around $28/bbl, around which it then traded before sliding toward $27/bbl during the US session. It eventually settled at $27.15/bbl, fixing $0.12/bbl above the previous settlement. Oil, which for weeks had exhibited a very strong correlation to equity indexes, not just failed to make gains as global markets were rallying during the second half of the day, but even slid. Deteriorating oil market fundamentals are dragging on prices and will continue to do so, which kept Brent from fully reflecting the stock market gains yesterday. For example, India has announced a 21-day lockdown. State oil refiners had already been reducing crude processing as local fuel demand tumbled, while some Indian ports have declared force majeure on their contracts, which could delay crude oil exports. In addition, gas station operators in Italy have announced that they will begin closing down along the country's highways today. Meanwhile, the IHS Markit PMIs released yesterday showed business activity had contracted at a record pace globally in March. Global markets, however, rallied on hopes that the previously announced Fed support, together with a pending fiscal stimulus package, would help shield at least the US economy from the effects of the coronavirus outbreak and the response to it. The S&P 500 soared 9.4% on the day, its best one-day performance since October 2008. US Senate leaders reached a deal on a stimulus bill this morning Moscow time. Anonymous sources on Capitol Hill have told Bloomberg that it is worth more than $2 trln, or roughly 10% of US GDP. It still must be voted on, which is expected to happen late this evening Moscow time. Overnight, the API reported that US crude stocks had dropped 1.2 mln bbl to 451.4 mln bbl last week (the EIA's last report estimated them at 453.7 mln bbl). The drawdown came despite an estimated 0.057 mln bpd increase in imports, but was supported by a 0.18 mln bpd increase in refinery runs. The refined product data was bullish, showing a 2.6 mln bbl draw in gasoline stocks and a 1.9 mln bbl decrease in distillate inventories. Investors are now positioning themselves for the EIA report due today at 17:30 Moscow time. The Bloomberg consensus suggests a 3.0 mln bbl build in crude stocks, a 2.0 mln bbl decrease in gasoline stocks and a 1.6 mln bbl drop in distillate stocks.We expect the EIA to report a crude inventory build of 1-2 mln bbl on seasonally subdued refinery runs and weaker exports. The rate at which refined product stocks have been seasonally drawing (particularly strong since mid-February) is likely to ease, reflecting emerging weakness in motor fuel demand, which looks certain to plummet in weeks ahead. The last EIA report seems to have gone unnoticed by the market, with nearly no volatility following the release, as investors are sure of strong builds in months to come. Should the stock market rally continue, it would at best, in our view, support Brent to test resistance at $28.7/bbl, an unlikely break above that potentially leading to $29.8/bbl. However, we think the deteriorating oil market fundamentals should be a stronger factor for Brent again today, pressuring it toward $27/ LD EXPERIENCING ELEVATED VOLATILITY ON LOW VOLUMESGold made steady gains throughout yesterday's session in anticipation of the US approving a fiscal stimulus program and closed 5.1% higher. Even disappointing PMIs in the US and eurozone, signaling the beginning of a recession, failed to dampen sentiment on the gold market. The eurozone manufacturing PMI dropped from 49.2 to 44.8, a seven-year low. The eurozone services PMI declined even more sharply, sinking from 52.6 to a record low of 28.4. The US data also revealed significant structural problems. The services PMI fell from 49.4 to 39.1 in March, while there are clear signs the April data will show a precipitous drop. This morning, markets stabilized and gold eased back below the psychologically important $1,600/oz mark. Overnight, US Senate leaders reached a deal on a $2 trln emergency program, while US presidential advisor Larry Kudlow said the overall support, coupled with the Fed's funds, could reach $6 trln. This additional funding could weaken the dollar and provide medium-term support for gold, but right now investors are primarily focused on the macro data for March and April. Today, US mortgage application data, durable goods orders and the FHFA house price index will be released. Gold is trading at $1,598/oz as we write, but we expect it to retreat to $1,575/oz if today's data is