Commodities Daily - May 21, 2020

> Oil ticks higher despite slightly disappointing EIA report. Brent peaked at $36.7/bbl during this morning's Asian trading session and is now sliding toward $36/bbl. We do not expect it to climb back to the $36.8-$37.7/bbl technical range today as US jobless claims and preliminary developed market PMIs are likely to be downbeat. Simmering US-China tensions also remain in the background after US President Trump fired a fresh volley of criticisms of Beijing on Twitter yesterday and the US Senate passed a bill that could curtail Chinese companies' ability to list on US exchanges.> Gold holding stable around the $1,740/oz mark. Today is a busy day for statistical releases, which will include jobless claims, the leading indicators and existing home sales data in the US and preliminary PMIs for May for several developed economies. Fed Chairman Jerome Powell is scheduled to give a speech on the economic impact of the coronavirus at 21:30 Moscow time.OIL TICKS HIGHER DESPITE SLIGHTLY DISAPPOINTING EIA REPORTFront-month Brent was trading at $34.5-35/bbl yesterday morning before peaking at almost $36.5/bbl in the middle of the day amid a rise in major stock market indexes. European equities firmed and EUR/USD posted its fourth straight day of gains (which has also provided a tailwind for the recent oil price rally), as expectations are rising that the bloc will approve a EUR500 bln fiscal stimulus plan. Meanwhile, US stock markets reached a 10-week high on signs that the US economy continues to reopen. Ahead of yesterday's EIA inventory report, Brent was hovering slightly above the $36/bbl mark. The report indicated a strong draw in crude oil stocks of 4.98 mln bbl to 526.5 mln bbl. The API had earlier reported a 4.8 mln bbl drop to 521.3 mln bbl. The EIA's reported drawdown came amid a 0.19 mln bpd decline in imports to 5.2 mln bbl, a 0.1 mln bpd decrease in crude production to 11.5 mln bpd and more importantly a strong 0.52 mln bpd increase in refinery inputs to 12.9 mln bpd. A 0.28 mln bpd decrease in exports to 3.24 mln bpd was insufficient to prevent the decline in oil inventories. We think that the EIA is overestimating US oil production, as its numbers suggest a 1.5 mln bpd drop since the end of March, while, according to Bloomberg, the latest company reports suggest a drop of 3 mln bpd. This implies that a much lower actual crude production figure could be the underlying reason for the latest crude oil inventory declines. Crude stocks at the Cushing WTI delivery hub in Oklahoma dropped by 5.6 mln bbl last week to 56.86 mln bbl. However, crude stocks at the Gulf Coast (home to more than half of the US's refining capacity and typically holding the most crude oil inventories) reached a record high, muting the positive effect of the total decrease.Meanwhile, a 2.83 mln bbl increase in gasoline stocks to 255.7 mln bbl (refineries started to raise output in response to the slow recovery in demand) and a 3.83 mln bpd rise in distillate stocks to 158.8 mln bbl provided strong bearish highlights in the report. Total commercial petroleum stockpiles (oil and refined products excluding strategic petroleum reserves) climbed 5 mln bbl, underlining the overall bearish nature of the report. A strong pickup in end-user demand will be crucial in the coming weeks for a drawdown of the massive product inventories, as refineries have swiftly started to boost production. People are driving more than they did a week ago as lockdowns are being eased and there is evidence around the world that many people are favoring their cars over public transport, which will boost gasoline use, though air travel remains very depressed.Following the release, Brent began to slide toward the $35/bbl mark, though it eventually settled at $35.75/bbl, $1.1/bbl above the previous settlement. It peaked at $36.7/bbl during this morning's Asian trading session and is now sliding toward $36/bbl. We do not expect it to climb back to the $36.8-37.7/bbl technical range today as US jobless claims and preliminary developed market PMIs are likely to be downbeat. Simmering US-China tensions also remain in the background after US President Trump fired a fresh volley of criticisms of Beijing on Twitter yesterday and the US Senate passed a bill that could curtail Chinese companies' ability to list on US LD HOLDING STABLE AROUND THE $1,740/OZ MARKGold market volatility is on the wane, and the gold price remained virtually unchanged yesterday, closing only 0.2% higher, trailing in the wake of silver (+1.2%), palladium (+ 3.8%) and platinum (+3.6%).The market remains optimistic, with ETF gold investments reaching another record high of 99.12 moz yesterday. The minutes to the latest FOMC meeting published the previous evening indicate concern among committee members that US GDP could post a precipitous drop in 2Q20, while the labor market is deteriorating rapidly. Importantly, the minutes provided no hint with regard to further rate cuts while mentioning the risk of a second wave of the coronavirus. Today is a busy day data-wise, with the publication of jobless claims, the leading indicators and existing home sales data scheduled in the US and preliminary PMIs for May due for several developed economies. Fed Chairman Jerome Powell is scheduled to give a speech on the economic impact of the coronavirus at 21:30 Moscow time. The PMIs that are out already have provided a mixed picture. Manufacturing PMIs for Australia, Japan, France and Germany have come in below consensus, while the Markit PMIs for the eurozone (manufacturing, services and composite) have improved and even beat the consensus. These numbers have failed to shift the gold price, which is stuck around the $1,740/oz mark.