Commodities Daily - May 18, 2021

> Oil rises amid optimism over global recovery. Brent pushed toward $70/bbl yesterday, supported by upbeat headlines about the US and global recovery from the pandemic, which seemed to overshadow concerns over weaker consumption in India. Today, investors will primarily be eyeing the weekly API update on US oil and refined product inventories. In our view, it should come out mixed and keep Brent capped below $70/bbl.> Gold advances despite rise in US Treasury yields. Gold climbed to $1,865/oz yesterday while the 10y US Treasury yield rose to 1.65%. Dallas Fed President Robert Kaplan reiterated his dovish stance on monetary policy. Gold is trading at $1,870/oz as we write. Investors are today eyeing a speech by ECB President Christine Lagarde and US housing starts and building permits for April. We expect bullion to test resistance at $1,875/oz today.OIL RISES AMID OPTIMISM OVER GLOBAL RECOVERYYesterday, Brent pushed toward $70/bbl, supported by upbeat headlines about the US and global recovery from the pandemic, which seemed to overshadow concerns over weaker consumption in India. In particular, yesterday the US reported the highest number of passengers at airports since the pandemic began. The improving oil market fundamentals imply, in our view, that currently there is limited downside to Brent calendar spreads from current levels and they should start to edge higher. However, substantial upside is only likely when August becomes the front-month contract for all three main global benchmarks (Brent, WTI and Dubai). By then, we expect a strong recovery in OECD demand. Before then, the demand recovery will likely be uneven over the summer. This could in fact persist throughout the entire year, in part because of low vaccination rates, a strong focus on getting Covid-19 cases to zero and cautiousness about reopening in the Asia-Pacific, the combination of which should keep global travel hamstrung until mid-2022. The main reason for the limited downside to oil prices is the OPEC+ deal - once the planned OPEC+ production increases are completed in July, the group is due to hold output steady until April 2022, which should lead to sharp stock drawdowns in 2H21. In addition, there has been no breakthrough in talks between Iran and the US to restore the 2015 nuclear deal, so the timeline for sanctions relief and a larger recovery in Iranian supply looks less certain. This represents the most important bullish catalyst to watch out for in the next four weeks before the OPEC meeting in June, while any delay could spur buying by Asian (and particularly Chinese) refiners who have remained on the sidelines. Today, investors will primarily be eyeing the weekly API update on US oil and refined product inventories. In our view, it should come out mixed and keep Brent capped below $70/ LD ADVANCES DESPITE RISE IN US TREASURY YIELDS Gold climbed from $1,845/oz to $1,865/oz yesterday despite the 10y US Treasury yield rising to 1.65%. Support came from EUR/USD, which firmed to 1.215. The Empire State manufacturing index for May came in at 24.3, above the consensus of 24 points but below the April reading of 26.3. This created modest support for bullion. An additional tailwind came from Dallas Fed President Robert Kaplan, who reiterated his dovish stance for this year but mentioned the possibility of a rate hike in 2022. Meanwhile, Fed Vice Chair Richard Clarida said the current state of the US jobs market indicates that the economy is not yet ready for monetary stimulus to be withdrawn. Gold therefore remains supported by recent negative data highlighting a stuttering US economic recovery, and its appeal as a safe-haven asset has been boosted by rising concern over increasing coronavirus cases in Asia. From a technical perspective, bullion yesterday closed above its 200d MA, a significant resistance level, and strong consolidation above that level could offer a bullish signal for investors.Gold is trading at $1,870/oz as we write, ahead of a speech by ECB President Christine Lagarde and the release of US housing starts and building permits for April. Tomorrow will see the publication of the FOMC minutes. We expect bullion to test resistance at $1,875/oz today, while a drop toward support at $1,820/oz seems