Commodities Daily - May 13, 2020

> Oil slides despite upbeat supply-side developments; US inventory data in focus. Brent is trading near $29.5/bbl as we write and is drawing some support from Saudi Arabia urging OPEC+ countries to reduce oil output further. Ahead of the EIA inventory data today, investors will be digesting the monthly OPEC report. We think the latest stock market correction and further inventory buildups are likely to pressure Brent down toward the $28.4/bbl support level, with a break below likely to cause it to retrench to the $26.0-28.4/bbl range later this week.> Gold stable and trading around $1,700/oz this morning. Fed Chairman Jerome Powell is scheduled to speak today at 16:00 Moscow time. His comments will likely be parsed more carefully than usual following President Donald Trump's call for negative rates yesterday. We do not expect Powell's comments to have much of an effect on gold prices, which we see holding in the $1,700-1,720/oz range today.OIL SLIDES DESPITE UPBEAT SUPPLY-SIDE DEVELOPMENTS; US INVENTORY DATA IN FOCUSYesterday, front-month Brent traded within a tight range of $29.6-30.7/bbl and eventually settled at $29.98/bbl, $0.35/bbl above the previous settlement. Prices were supported by a Reuters report that OPEC+ ministers are inclined to stick to the latest oil production cuts (officially close to 10 mln bpd) after June. Under the current deal, OPEC+ signatories will scale back the cuts to 7.7 mln bpd from July until December. One source familiar with the matter told Reuters that OPEC+ members "don't want to reduce the size of the cuts. This is the basic scenario that's being discussed now." OPEC+ will meet again in early June to decide on its output policy. Later yesterday, the EIA's monthly oil market outlook suggested that US crude production this year will fall by 0.54 mln bpd y-o-y (last month it forecast a 0.47 mln bpd decrease) and average just 11.69 mln bpd (versus last month's forecast of 11.76 mln bpd and the most recent data showing output of 12.83 mln bpd in February). However, we think that US oil production will drop by as much as 1.3 mln bpd this year. For 2021, the EIA projects US oil output averaging 10.9 mln bpd, down by 0.79 mln bpd y-o-y and above our assumption of a 0.6 mln bpd y-o-y decline. The EIA also lowered its 2020 global demand forecast and now expects it to slide 8.13 mln bpd y-o-y and average 92.61 mln bpd (versus the 5.23 mln bpd drop it forecast last month) due to the disruption to global economic activity caused by Covid-19.Overnight, the API reported that US crude stocks surged 7.6 mln bbl to 526.2 mln bbl last week (the EIA's latest report put them at 532.2 mln bbl). The significant disparity between the API's and EIA's overall oil stocks data over the past few weeks remains a source of concern. The API data appears to be lagging the EIA numbers, but the EIA could also conceivably be overestimating the recent buildup in oil stocks, which could result in a downward revision at some point. The API's reported oil stock build came amid a 0.14 mln bpd increase in imports and a 0.23 mln bpd decrease in refinery runs. Crude stocks at the Cushing, Oklahoma, delivery hub surprisingly fell by 2.3 mln bbl. The refined product data was mixed, showing a 1.9 mln bbl draw in gasoline stocks and a strong 4.7 mln bbl increase in distillate inventories. Investors are now positioning themselves for the EIA report today at 17:30 Moscow time. The Bloomberg consensus is calling for a 4 mln bbl crude stock build, a 2.5 mln bbl decrease in gasoline inventories and a 3 mln bbl gain in distillate stocks. Downbeat inventory data weighed on oil prices overnight, which was compounded by leading US infectious disease expert Anthony Fauci warning lawmakers that prematurely lifting the lockdowns could lead to additional outbreaks of the coronavirus.Brent is trading near $29.5/bbl as we write and is drawing some support from Saudi Arabia urging OPEC+ countries to reduce oil output further. Ahead of the EIA inventory data today, investors will be digesting the monthly OPEC report. We think the latest stock market correction and further inventory buildups are likely to pressure Brent down toward the $28.4/bbl support level, with a break below likely to cause it to retrench to the $26.0-28.4/bbl range later this LD STABLE AND TRADING AROUND $1,700/OZ THIS MORNINGYesterday, investors were mainly focused on comments by Fed officials and US inflation. The CPI for April dropped 0.8% m-o-m, which was in line with forecasts, while the y-o-y reading remained positive at 0.3%. The negative inflation readings in March and April were clearly attributable to a steep decline in energy prices and quarantine measures. Expectations of rising inflation once the restrictions are lifted may support investors' demand for gold and have a positive effect on prices (gold is typically seen as protection against inflation). Fed Chairman Jerome Powell is scheduled to speak today at 16:00 Moscow time. His comments will likely be parsed more carefully than usual following President Donald Trump's call for negative rates yesterday. The US president yesterday in his tweet called negative rates a "gift" and recommended accepting the benefit they would provide.However, several Fed representatives spoke out against negative interest rates, including St Louis Fed President James Bullard, who also voiced concern that the shutdowns could result in widespread bankruptcies and an economic depression. Meanwhile, Minneapolis Fed President Neel Kashkari indicated that there were more important issues to focus on than rates. We do not expect Powell's comments to have much of an effect on gold prices, which we see holding in the $1,700-1,720/oz range