Commodities Daily - May 6, 2020

> Oil prices surge as lockdowns are being eased; US inventory data in focus. We think the latest rally has been overdone and further inventory buildups this month are likely to temper optimism and cause another correction. The current upward momentum is very fragile, and any sustained oil price rally can only happen once inventory drawdowns have started. We think this is unlikely before mid-June, which will make for a long and uncertain recovery. Today sees the publication of the US ADP employment report and services and composite PMIs from a number of countries and the eurozone, as well as eurozone retail sales. We expect Brent to slip to the $28.7-29.6/bbl range this week.> Gold consolidating in the $1,700-1,715/oz range. Extremely weak US macro data failed to push gold sharply higher yesterday. The markets are now exhibiting modest optimism about the prospects for the softening of lockdown measures in developed countries, while ETFs continue to accumulate gold. Today, the focus will be on the US ADP employment report for April (15:15 Moscow time). We expect gold to trade sideways.OIL PRICES SURGE AS LOCKDOWNS ARE BEING EASED; US INVENTORY DATA IN FOCUSFront-month Brent opened at $28/bbl yesterday and gained around $3/bbl amid stock market tailwinds before settling at $30.97/bbl, $3.77/bbl above the previous settlement. Lockdowns are gradually being eased in many developed markets and subsequent expectations of a rebound in oil demand have driven prices higher. Reuters has reported that Italy, Spain, Nigeria and India, and some US states have begun allowing some people to go back to work and reopened construction sites, parks and libraries. Vehicle traffic volumes have begun to revive in most of the US and even in places where shelter-in-place orders have yet to be lifted. This is despite some health experts warning that such moves could cause infection rates to rise again. Any recovery in global oil demand is likely to be slow, as air traffic is not expected to rebound anytime soon, and global jet fuel demand stood at close to 8 mln bpd before the pandemic. OPEC+'s production curbs came into force on May 1, which along with US oil production declines has helped to ease fears that the world will run out of storage space for crude and fuels.Overnight, the API reported that US crude stocks surged by 8 mln bbl to 518.6 mln bbl last week (the EIA's last report put them at 527.6 mln bbl). The significant disparity between the API's and EIA's overall oil stocks data over the past few weeks remains a source of concern. The API data appears to be lagging the EIA numbers, but the EIA could also conceivably be overestimating the recent buildup in oil stocks, which could result in a downward revision at some point. The API's reported oil stock build came amid a 0.25 mln bpd increase in imports and despite a 0.2 mln bpd rise in refinery runs. The refined product data was mixed, showing another surprising 2.2 mln bbl draw in gasoline stocks and a strong 6.1 mln bbl increase in distillate inventories. Investors are now positioning themselves for the EIA report today at 17:30 Moscow time. The Bloomberg consensus suggests an 8.8 mln bbl build in crude stocks, a 1 mln bbl rise in gasoline stocks and a 3 mln bbl gain in distillate stocks. US crude oil stock builds have averaged nearly 15 mln bbl per week over the past five weeks, but today we think that EIA will likely report a much weaker increase. For example, a stock build of around 5 mln bbl would look strong at face value, but in the current environment we think it would be upbeat, as it would confirm that the situation on the oil market is gradually normalizing. We think the latest rally has been overdone and further inventory buildups this month are likely to temper optimism and cause another correction. The current upward momentum is very fragile, and any sustained oil price rally can only happen once inventory drawdowns have started. We think this is unlikely before mid-June, which will make for a long and uncertain recovery. Today sees the publication of the US ADP employment report and services and composite PMIs from a number of countries and the eurozone, as well as eurozone retail sales. We expect Brent to slip to the $28.7-29.6/bbl range this LD CONSOLIDATING IN THE $1,700-1,715/OZ RANGEThe past two days have seen extremely weak business activity data for April in developed countries. Yesterday, the US services PMI came in at 26.7 (below the consensus forecast of 27), while the US ISM nonmanufacturing index slid to an 11y low of 41.8 (down from 52.2 in March though above the consensus forecast of 37). This morning, the eurozone services PMI for April was reported at 12, while the composite PMI came in at 13.6, indicating a sharp decline in business activity, serious problems in the labor markets and the onset of recession in Europe in 2Q20. Gold should normally gain on this type of news, but it has stuck at $1,700-1,715/oz in response to lockdowns being eased.Gold investors continue to increase their positions. According to Bloomberg, ETF gold purchases have set new records each day since April 22. Meanwhile, hedge funds' long open positions in gold on COMEX have also been on the rise (and were up 1.7% in the week to April 28).Today, the focus will be on the US ADP employment report for April (15:15 Moscow time). We expect gold to trade