Commodities Daily - May 7, 2020

> Oil prices ease on continuing inventory buildups, OPEC+ deal concerns. This morning, Brent was trading slightly higher near $30/bbl, drawing support from Chinese customs data showing that crude imports were up 0.74 mln bpd m-o-m to 10.42 mln bpd in April amid higher refinery intake and end user demand. We think that Brent is likely to come under pressure again today amid the still-weak fundamental backdrop and test technical support at $28.7/bbl.> Gold dropped 1.2% yesterday, pressured by strengthening dollar. This morning, gold is rebounding toward $1,690/oz. Market volatility is likely to remain high for the rest of the week, with the US jobless claims report for the week ending May 2 due at 15:30 Moscow time today and the official April US jobs report scheduled for release tomorrow. If the dollar continues to strengthen, gold prices will continue to face pressure and could be pushed to a test of support at $1,676/oz.OIL PRICES EASE ON CONTINUING INVENTORY BUILDUPS, OPEC+ DEAL CONCERNSAfter trading near $32/bbl at the start of the day yesterday, front-month Brent began to slide toward $30.5/bbl. It made a brief attempt to recover to the $32/bbl mark but then resumed its decline in the early European trading hours, reaching $29.8/bbl ahead of the EIA inventory report. Oil's move downward came amid a strengthening dollar, steady stock markets and reports that Iraq (OPEC's second largest producer with output of 4.6 mln bpd) was struggling to implement its production cuts under the new OPEC+ deal. Iraq is obligated to cut its oil output by 1 mln bpd, which will require the effort of not only the state-owned Basra Oil, but also international majors such as BP, Exxon, Eni and Lukoil, which operate the biggest fields in the country and reportedly want government compensation for their losses. According to Reuters, so far Iraq's plan for exports from the south of the country in May is still broadly in line with April's export figure at around 3.3 mln bpd, even though the OPEC+ deal kicked in on May 1. A spokesman from Basra Oil commented on the matter, saying that the company did not believe the talks with international majors had reached a deadlock and that it expects a breakthrough to be reached soon. However, the current export schedules of Nigeria and Angola also indicate that the two countries are not cutting production as much as required under the deal.EIA's weekly report on US oil and refined product inventories showed yet another strong (although not nearly as strong as in the last few weeks) weekly build in crude oil stocks of 4.59 mln bbl to 532.2 mln bbl. This came amid still-subdued refining activity (though refinery inputs were up 0.21 mln bpd to 12.97 mln bpd) and a 0.41 mln bpd increase in imports to 5.71 mln bpd. A weekly 0.24 mln bpd increase in exports to 3.55 mln bpd and a 0.2 mln bpd decrease in crude oil production to 11.9 mln bpd were insufficient to offset the oil inventory increase. Storage at Cushing, the WTI delivery hub, was nearly full with inventories at 65.4 mln bbl, with much of the remaining storage space (around 8 mln bbl worth) leased already. The biggest positive surprise from the EIA data was another strong 3.16 mln bbl drop in gasoline stocks to 256.4 mln bbl, as refineries continued to cut production, imports remained well below normal and demand continued to recover (it is still extremely low for this time of year). Distillate stocks were up a very strong 9.52 mln bbl to 151.5 mln bbl, with total petroleum stockpiles remaining on the rise amid this unprecedented period of demand destruction. Total commercial inventories (oil and refined products combined) were up 17.92 mln bbl. Investors were initially encouraged by the smaller increase in crude stocks and further dip in gasoline stocks, which helped Brent climb $0.5/bbl immediately following the release. However, it seems that later on the reality began to set in that the overall picture remains grim, which caused Brent to retreat to $29/bbl. It eventually settled at $29.72/bbl, fixing $1.25/bbl above the previous settlement. This morning, Brent was trading slightly higher near $30/bbl, supported by Chinese customs data showing that crude imports were up 0.74 mln bpd m-o-m to 10.42 mln bpd in April amid higher refinery intake and end user demand. We think that Brent is likely to come under pressure again today amid the still-weak fundamental backdrop and test technical support at $28.7/ LD DROPPED 1.2% YESTERDAY, PRESSURED BY STRENGTHENING DOLLARYesterday, investors took note of further weak macro data from both the US and Europe. As we pointed out in yesterday's daily, the PMI readings for most European countries (both the services and composite gauges) in April were quite low. The ADP April employment report from the US also created cause for concern, showing a 20.2 mln drop in private sector payrolls (the consensus was for a 20.55 mln drop). After the ADP report came out, the dollar began to strengthen, causing gold to drop around $10/oz. The dollar found a further tailwind from reports of renewed trade tensions between the US and China. The US is accusing China of covering up data on Covid-19 and is reportedly considering further tariffs on Chinese goods, as well as restrictions on investing in Chinese stocks. Gold dropped to an intraday low of $1,677/oz yesterday and finished with a loss of 1.2% for the day.This morning, gold is rebounding toward $1,690/oz. Market volatility is likely to remain high for the rest of the week, with the US jobless claims report for the week ending May 2 due at 15:30 Moscow time today and the official April US jobs report scheduled for release tomorrow. If the dollar continues to strengthen, gold prices will continue to face pressure and could be pushed to a test of support at $1,676/