Commodities Daily - May 21, 2021

> Oil keeps sliding due to potential removal of US sanctions on Iranian oil. Today the oil market will be primarily focused on the preliminary eurozone PMI and the US IHS Markit PMI for May. We expect upbeat data, which should push Brent above the $65/bbl mark and put a halt to this week's price slump> Gold gains as Treasury yields slide. Gold edged up to just above $1,875/oz yesterday as the 10y US Treasury yield slipped to 1.63%. US initial jobless claims came in at just 444k, down from 478k the previous week. During the Asian session today, gold continued to trade close to $1,875/oz. The highlights on today's macro calendar include Markit May PMI readings from a range of DMs, US existing home sales for April and eurozone consumer confidence for May. Overall, we think gold is likely to trade sideways in the $1,850-1,875/oz range today.OIL KEEPS SLIDING DUE TO POTENTIAL REMOVAL OF US SANCTIONS ON IRANIAN OILYesterday, Brent slid from $67/bbl to $65/bbl, its lowest level in nearly a month, as traders focused on the likelihood of a new nuclear deal between the US and Iran and the potential removal of sanctions on the country's crude exports. The Iranian president yesterday said world powers had accepted that the sanctions will be lifted. International talks to revive the Iran nuclear deal will resume next week amid signs that an agreement is close. We expect Iranian oil production to begin to climb slowly from July. There are still hard diplomatic yards to be made in the coming weeks, but the likely return of Iranian oil in the coming months will now begin to dominate discussions within OPEC+, which next meets on June 1. Even though Iran's return was anticipated, prices and calendar spreads have sold off severely since Iranian President Rouhani said the main agreement "was done." This suggests that some traders were expecting a later Iranian return or perhaps that the market continues to believe that reaching a deal implies an immediate crude supply spike. We disagree. If the US takes the position that the agreement needs to be reviewed by Congress under the 2015 INARA act (we think it will do so for domestic political reasons), the US would be unable to waive sanctions for at least 60 days from any deal date. It is highly unlikely that the core US oil sanctions could be waived before Iran has verifiably complied with its nuclear obligations, which we think will take at least two months. Either way, Iranian exports (including from tanks) cannot rise significantly right away, in our view.After the waivers, 70 mln bbl of Iranian crude oil stocks (including those stored in China) will be unwound, weighing on calendar spreads. We believe Iran's return in 3Q21 would force OPEC+ to delay any move to lift production in August and likely September as well.Today, the oil market will be primarily focused on the preliminary eurozone PMIs and the US IHS Markit PMIs for May. We expect upbeat data, which should push Brent above the $65/bbl mark and put a halt to this week's price slump. The Brent crude front-month futures contract yesterday closed below its lower Bollinger band, indicating it may be oversold. In the past year, the front-month futures contract has crossed below this level four times and risen an average of 8.2% over the following 20 LD GAINS AS TREASURY YIELDS SLIDEGold edged up to just above $1,875/oz yesterday as the 10y US Treasury yield slipped to 1.63%. Meanwhile, EUR/USD pushed ahead to 1.223, which also supported bullion. Eurozone construction output data for March showed an increase of 2.7% after a 0.6% drop in February. In addition, the German PPI rose 5.2% in April, slightly exceeding the expected 5.1%. This data from the eurozone provided support for the euro and gold yesterday. However, US initial jobless claims were fairly strong for the third week straight, dropping to 444k from 478k the previous week. This created mild headwinds for gold prices (since signs of further recovery in the labor market fuel concerns about Fed policy tightening), but it was not enough to spoil the generally upbeat mood yesterday. During the Asian session today, gold continued to trade near $1,875/oz. Sitting atop today's macro agenda are preliminary May PMIs for the US and eurozone. The Bloomberg consensus anticipates an improved reading from the eurozone services gauge and a slight tick downward in the services reading for the US. This would support gold, though we would not expect it to consolidate above resistance at $1,875/oz today; we instead think that gold is likely to trade sideways in the $1,850-1,875/oz