Commodities Daily - March 5, 2020

> Oil inches lower despite upbeat EIA report as Saudi Arabia and Russia debate deeper cuts. In our view, the most important and upbeat takeaway from yesterday is that Saudi Arabia is clearly willing to intervene strongly. The kingdom's firm stance reassures us that a 1 mln bpd additional cut in 2Q20 will be announced. We note that only Saudi Arabia and the other countries of OPEC are meeting today, and that these are the countries which since 2017 have been responsible for most of the output cuts and are the key to balancing global supply with demand. We think that Brent is likely to trade sideways today, mostly within a technical corridor of $51.1-52.8/bbl.> Gold stable despite persisting coronavirus risks. Yesterday's strong US macro data had little impact on gold, which closed 0.2% lower at $1,637/oz. St Louis Fed President James Bullard's remarks yesterday suggested that investors should not be counting on a further 50 bp rate cut at the Fed's March 17-18 meeting. Today is likely to be fairly uneventful. The US will publish its weekly jobless claims dataset, along with figures for factory and durable goods orders. The World Gold Council is scheduled to release a report on ETFs' gold holdings in February, while Russia is set to post an update on its holdings of gold. We expect gold to continue consolidating around $1,640/oz today.OIL INCHES LOWER DESPITE UPBEAT EIA REPORT AS SAUDI ARABIA AND RUSSIA DEBATE DEEPER CUTSAfter rising $1/bbl during Asian trading yesterday to almost $53/bbl, front-month Brent started to consolidate in the $52-53/bbl range and was trading near $52.4/bbl ahead of the EIA inventory report, which ended up showing a small 0.78 mln bbl increase in US crude stocks to 444.1 mln bbl last week, which was more upbeat than the Bloomberg consensus of a 3 mln bbl build and smaller than the API's reported 1.7 mln bbl increase. The buildup came amid a 0.31 mln bpd drop in refinery inputs to 15.7 mln bpd, a 0.1 mln bpd increase in crude oil production to a record high of 13.1mln bpd and a small 0.02 mln bpd increase in imports to 6.24 mln bpd. A 0.5 mln bpd increase in exports to 4.15 mln bpd was insufficient to prevent a buildup. Importantly, crude stocks are still not building as strongly as usual amid the ongoing seasonal refinery maintenance. This is due to elevated exports. However, a further spread of the coronavirus could soon put the brakes on US crude exports, while US refiners are expected to boost oil inputs in late March unless domestic refined product demand is dented by the epidemic.The refined product data was bullish, with total petroleum stocks (including oil but excluding strategic petroleum reserves) down 11.86 mln bbl. Gasoline stocks fell 4.3 mln bbl to 252 mln bbl, while distillate stocks were down 4 mln bbl to 134.5 mln bbl. Despite these bullish developments, there was not a positive market reaction to the report, as investors were mostly focusing on the unnerving reports from Vienna, where the OPEC+ Joint Ministerial Monitoring Committee was discussing its options. Reportedly, Saudi Arabia and Russia are split over the need for further cuts, with the kingdom advocating for a very strong 1.5 mln bpd additional cut and Russia in favor of maintaining supply at the current level. This weighed on Brent later in the day, which slid toward $51/bbl despite a strong stock market rally. The S&P added more than 4% yesterday on the passage in the US House of Representatives of an emergency $8 bln bill to combat Covid-19 globally. This has helped sentiment, though dismissive remarks on the "hoax" of the virus from the US president have made the next steps uncertain. Headlines from around global markets also continued to discuss possibilities of more central bank stimulus, particularly from China and the US. Brent settled at $51.13/bbl, fixing $0.73/bbl below the previous settlement. We stress that such divergences in opinion within OPEC+ during the negotiations are not at all unusual but that a unified and in most cases upbeat solution on the final day of talks has almost always materialized. In our view, the most important and upbeat takeaway from yesterday is that Saudi Arabia is clearly willing to intervene strongly. The kingdom's firm stance reassures us that a 1 mln bpd additional cut in 2Q20 will be announced. We note that only Saudi Arabia and the other countries of OPEC are meeting today, and that these are the countries which since 2017 have been responsible for most of the output cuts and are the key to balancing global supply with demand. We think that Brent is likely to trade sideways today, mostly within a technical corridor of $51.1-52.8/ LD STABLE DESPITE PERSISTING CORONAVIRUS RISKSThe news flow surrounding the coronavirus remained mostly negative yesterday and has also been downbeat this morning. California has declared a state of emergency, not long after the state of Washington did so. The recent developments have provided support to gold prices, which are consolidating around $1,640/oz.Yesterday's macro data painted a fairly bright picture of the US economy in March. ADP private payrolls rose by 183k, topping the consensus estimate by 13k, while the ISM nonmanufacturing index printed at 57.3, above the expected 54.8. The strong data caused gold to slip a bit, from $1,644/oz to $1,637/oz, and close 0.2% lower. Global markets took note of St Louis Fed President James Bullard's comment yesterday that the Fed has the policy rate in "the right place for now." He also said that the Fed would not have much additional information by the time of its March 17-18 meeting to justify another rate cut. This remark most certainly warrants the attention of gold investors, seeing as the Fed's recent 0.5 pp emergency rate cut triggered a 3.2% surge in gold prices. Today is likely to be fairly uneventful. The US will publish its weekly jobless claims dataset, along with figures for factory and durable goods orders. The World Gold Council is scheduled to release a report on ETFs' gold holdings in February, while Russia is set to post an update on its holdings of gold. We expect gold to continue consolidating around $1,640/oz