Commodities Daily - May 14, 2020

> Oil slides despite upbeat EIA inventory report; IEA report in focus. Global stocks and oil prices have been trending downward since Fed Chairman Jerome Powell's sobering remarks yesterday evening about the compounding risks in the US and global economies and his call for far more fiscal stimulus to combat the economic crisis caused by Covid-19. Today, investors will be digesting the monthly IEA report, which we think could pressure Brent toward the $28.4/bbl support level given the negative momentum in the stock market. A break below this level would likely cause the benchmark to retrench in the $26.0-28.4/bbl range later this week.> Gold trading at $1,720/oz amid increase in safe-haven demand. Uncertainty surrounding the further spread of the coronavirus continues to negatively affect the markets. The global daily infection rate remains high at 88.2k, while the epicenter has shifted to Latin America. Yesterday, US President Donald Trump publicly exchanged views with Fed Chair Jerome Powell. Today, the markets await US jobless claims (15:30 Moscow time). The consensus is for 2.5 mln initial claims and 25 mln continuing claims. We expect gold to test technical resistance at $1,739/oz if the data is particularly weak.OIL SLIDES DESPITE UPBEAT EIA INVENTORY REPORT; IEA REPORT IN FOCUSIn the early European trading hours yesterday, front-month Brent rallied $1.3/bbl to $30.3/bbl, tracking moves in EUR/USD and global stocks. However, it was unable to hold above $30/bbl for long and slid to $29.9/bbl ahead of the EIA inventory report amid a reversal in EUR/USD and stocks and a bearish OPEC monthly report. Just like the EIA report released a day earlier, OPEC made a massive downward revision to its global demand estimate for this year. It now expects global demand to fall by 9.08 mln bpd to 90.59 mln bpd (previously, it expected a 6.91 mln bpd decrease to 92.82 mln bpd). Demand for OPEC crude this year (the so-called "call on OPEC crude") was revised downward by 0.26 mln bpd, as the substantial drop in demand will outweigh the drop in non-OPEC supply (which is forecast to fall 3.53 mln bpd y-o-y this year). The call on OPEC crude is forecast to drop to a low of 16.77 mln bpd in 2Q20 before recovering to 27.89 mln bpd in 3Q20 and then peaking at 31.18 mln bpd in 4Q20 as lockdown measures are lifted. There was, however, an upbeat note in the report highlighting that "the speedy supply adjustments have already started showing positive response, with rebalancing expected to pick up faster in the coming quarters."Later in the day yesterday, attention turned to the EIA weekly report on US oil and refined product inventories, which was surprisingly upbeat, showing a draw in crude oil stocks of 0.74 mln bbl to 531.47 mln bbl. This came amid a 0.32 mln bpd decrease in imports to 5.4 mln bpd and a 0.3 mln bpd decrease in crude oil production to 11.6 mln bpd. A 0.02 mln bpd decrease in exports to 3.53 mln bpd and, more importantly, a very strong 0.6 mln bpd decrease in refinery inputs to 12.38 mln bpd were insufficient to prevent a decline in oil inventories. It seems to us that the EIA may be overestimating US oil production, as its numbers show a 1.4 mln bpd decrease since the end of March, while, according to Bloomberg, the latest company reporting suggests a drop of 3 mln bpd. Inventories at Cushing, the WTI delivery hub, fell by 3 mln bbl to 62.44 mln bbl. Another strong positive from the report was a 3.51 mln bbl drop in gasoline stocks to 252.9 mln bbl as refineries continued to cut production and demand continued to recover (the states of Texas and Florida, which consume a lot of gasoline, are reporting more people at the pumps). Distillate stocks were up 3.51 mln bbl to 155.0 mln bbl, with total commercial petroleum stockpiles falling for the first time since early March, although by a very small 0.54 mln bbl. While we still do not expect to see a sustained drawdown in US inventories before mid-June, yesterday's report indicated that the rapid rise in US stockpiles is running out of steam. Brent climbed to an intraday high of $30.55/bbl immediately following the release, though it went on to settle at $29.19/bbl, fixing $0.79/bbl below the previous settlement. Oil's late move downward, which was accompanied by a decline in global stock markets, came after Fed Chairman Jerome Powell's sobering remarks about the compounding risks in the US and global economies. Powell also called for far more fiscal stimulus to combat the economic crisis caused by Covid-19. Today, investors will be digesting the monthly IEA report, which we think could pressure Brent toward the $28.4/bbl support level given the negative momentum in the stock market. A break below this level would likely cause the benchmark to retrench in the $26.0-28.4/bbl range later this LD TRADING AT $1,720/OZ AMID INCREASE IN SAFE-HAVEN DEMANDSafe-haven assets made gains yesterday. Gold closed 0.8% higher and was trading in the $1,700-1,720/oz range, while the 10y US Treasury yield eased 3 bps to 0.63%. Uncertainty surrounding the further spread of the coronavirus continues to negatively affect markets, as the global daily infection rate remains high at 88.2k, while the epicenter has shifted to Latin America. Fed Chair Jerome Powell gave a speech in which he argued against negative rates, but US President Donald Trump publicly weighed in to the discussion, setting out his disagreement with the Fed and confirming his wish for negative rates. The importance of monetary policy easing has been under discussion for years, and it has provided support for gold since December 2018. Gold has added 20% since the initial cut in the current cycle in July 2019.Today, the markets await US jobless claims (15:30 Moscow time). The consensus is for 2.5 mln initial claims and 25 mln continuing claims. We expect gold to test technical resistance at $1,739/oz if the data is particularly