Commodities Daily - May 18, 2020

> Oil prices climb amid falling supply and improving demand. Brent has been targeting $34/bbl so far today. Clearly, the softening of lockdown measures from New York to Italy and Spain is providing strong support. However, India has extended a nationwide lockdown of the country's 1.3 bln people for at least two more weeks. On the back of today's early rally, we think Brent is very likely to reach the $34.3-$34.9/bbl technical range during the first half of this week.> Gold ticks higher this morning following downbeat comments from Powell. Gold is trading around the $1,760/oz mark and appears set to remain elevated with the opening in New York. This week, the market awaits the publication of the minutes to April 29 Fed meeting and comments by Fed officials (Atlanta Fed President Raphael Bostic is scheduled to speak today). We expect the current momentum to see gold consolidate in the $1,765-1,770/oz range and possibly test resistance at $1,774/oz.OIL PRICES RISE AMID FALLING SUPPLY AND IMPROVING DEMANDOn Friday morning, front-month Brent was oscillating within the $31.0-32.5/bbl range, pressured toward the lower end of the range by downbeat US economic data. US retail sales sank 16.4% m-o-m in April (and were down 21.6% y-o-y), for a second straight month of record declines, while US industrial production slid 11.2% m-o-m in the same month, both underlining the deepening economic slump. Analysts expect these numbers to stage something of a recovery in May, as businesses around the country are reopening. The recovery is unlikely to be sharp, as businesses are operating well below capacity, while many small businesses are likely to close permanently. However, a modest improvement is certainly in the cards, especially as the University of Michigan consumer sentiment index on Friday showed an improvement in early May after some households received funds from the nearly $3 trln fiscal package passed by Congress. The main supportive factor for oil demand this month is of course the gradual easing of travel restrictions in some US states.During Friday's US trading session, Brent began to rally toward the $33/bbl mark and eventually settled at $32.50/bbl, $1.37/bbl above the previous settlement. One factor providing support was the Baker Hughes report, which indicated yet another sharp drop in the weekly active US rig count (down by 35 units to a new record low of 339). Drillers have been cutting an average of 50 rigs per week since mid-March. Energy Aspects estimates that US production will fall by an average of 1.37 mln bpd this year and by 0.67 mln bpd next year in response to the crash in oil prices and logistical issues. Moreover, forward oil prices are still below $40/bbl, the breakeven level for high-cost and low-volume production wells, which will keep around 0.47 mln bpd of output offline until end-2020.Brent has been targeting $34/bbl so far today following the softening of lockdown measures from New York to Italy and Spain (where the daily death toll dropped below 100 for the first time in two months). However, India has extended a nationwide lockdown of the country's 1.3 bln people for at least two more weeks. On the back of today's early rally, we think Brent is very likely to reach the $34.3-$34.9/bbl technical range during the first half of this LD TICKS HIGHER THIS MORNING FOLLOWING DOWNBEAT COMMENTS FROM POWELLGold advanced again on Friday, fueled by weak US retail sales for April (down 16.4% versus the consensus forecast of a 12% drop) and industrial production (down 11.2% versus the consensus of a 12% decline). It reached an intraday high of $1,750/oz in the afternoon before closing 0.8% higher on the day.The positive momentum continued this morning thanks to a CBS interview yesterday with Fed Chairman Jerome Powell in which he expressed skepticism over the economic recovery, saying that it could take until the end of 2021. He also said he anticipates a disappointing second quarter, saying that the data will be "very, very bad." Unemployment could spike to 25% this quarter, while GDP could contract by 20-30%. Powell's comments boosted demand for gold this morning, sending it almost $15/oz higher to $1,760/oz.This week, the market awaits the publication of the minutes to April 29 Fed meeting and comments by Fed officials (Atlanta Fed President Raphael Bostic is scheduled to speak today). We expect gold to continue climbing today and possibly test resistance at $1,774/oz this