Commodities Daily - May 8, 2020

> Oil prices spike on release of Saudi June export prices, then pull back. We maintain our view that in the near term oil price spikes will continue to be followed by selloffs, as supply still exceeds demand. Nonetheless, demand is on the upswing, while supply is declining, and in our view the former will surpass the latter in mid-June, when inventories will start to decrease gradually. This is when we would expect upward oil price momentum to become sustainable. As for today, we believe Brent could fall to technical support at $28.7/bbl on downbeat US nonfarm payrolls data and then possibly settle within a $27.7-$28.7/bbl technical range.> Gold prices ride weak US jobless claims report higher. This morning, gold is trading around the $1,720/oz mark amid burgeoning expectations of further easing of monetary policy globally this year and next. Today, the focus will mainly be on US nonfarm payrolls. The consensus expects a 22 mln drop in payrolls and an unemployment rate of 16%. However, we do not necessarily think that a worse than expected reading would trigger a strong rally in gold. Gold has been trading within what has proven to be a rather stubborn range of $1,700-1,720/oz. We think a break out of that range would require a strong new catalyst such as moves from central banks or a renewal of geopolitical risks.OIL PRICES SPIKE ON RELEASE OF SAUDI JUNE EXPORT PRICES, THEN PULL BACKAt the start of the day yesterday, front-month Brent was supported near $30/bbl by Chinese customs data showing that the country's 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. Furthermore, Chinese goods exports unexpectedly rose for the first time this year (they were up 3.5% y-o-y in April), which supported stock markets and risk appetite yesterday, as it indicated that Chinese factories had raced to make up for the lost sales due to the coronavirus pandemic and take advantage of higher demand in foreign markets due to factory closures there. However, a sharp drop in imports to China tempered the optimism somewhat, as it pointed to more trouble ahead as the global economy sinks into recession. Following the start of the European trading session, Brent spiked to $31.8/bbl after Saudi Aramco unexpectedly raised its official selling prices in June for all shipments to Europe and the US as well as for shipments of most oil grades to Asia (indicating improving demand), this after being forced to cut prices for May exports even with the new OPEC+ deal set to kick in. We note that most refiners were expecting Saudi crude prices to be cut for a fourth straight month in June given the narrow refining margins due to the extremely weak end-user demand for motor fuels. Saudi crude oil exports are expected to average about 6 mln bpd in May (which would be the lowest in almost a decade), with Asia taking about 4 mln bpd and the US less than 0.6 mln bpd. Saudi Arabia is obligated to cut its crude oil production to 8.5 mln bpd under the OPEC+ deal, while its refineries usually process about 2.4 mln bpd of crude.However, the pickup in oil prices proved short-lived. Brent retraced to $29/bbl later in the day amid weak economic data from the US showing that almost 3.2 mln more Americans had filed to receive unemployment benefits last week and that continuing claims stood at 22.65 mln as of April 25. Today, the focus turns to the official April US jobs report. After the monthly ADP report and the weekly jobless claims update earlier this week, the consensus expects a 22.0 mln drop in nonfarm payrolls, which would be by far the worst result on record. On a more positive note, Michigan and California, two US manufacturing powerhouses, decided yesterday to allow factories to reopen from lockdowns over the next few days. We note that the US auto sector, which accounts for 6% of US economic output and employs more than 835,000 Americans in vehicle production, is concentrated around Detroit, Michigan. Also supportive for risk assets today has been news that the US and China have agreed to implement all their obligations under the phase-one trade deal and resume active negotiations on trade as soon as next week, especially after the escalation in rhetoric on Covid-19 and trade in recent days. We, however, maintain our view that in the near term oil price spikes will continue to be followed by selloffs, as supply still exceeds demand. Nonetheless, demand is on the upswing, while supply is declining, and in our view the former will surpass the latter in mid-June, when inventories will start to decrease gradually. This is when we would expect upward oil price momentum to become sustainable. As for today, we believe Brent could fall to technical support at $28.7/bbl on downbeat US nonfarm payroll data and then possibly settle within a $27.7-$28.7/bbl technical LD PRICES RIDE WEAK US JOBLESS CLAIMS REPORT HIGHERYesterday, gold prices fully recovered Wednesday's decline and even managed to edge 1.8% higher. The gains came amid a move higher in other precious metals: silver and palladium climbed 3.3% apiece and platinum added 1.8%. The dollar index, meanwhile, shed 0.2% despite the rather downcast mood in markets triggered by the bleak US labor market data. Wednesday's ADP report showed a drop of 20.2 mln jobs in the private sector in April, while yesterday's initial jobless claims report for the week ending May 2 showed another 3.17 mln claims. On Wednesday, gold prices reacted to the jobs data with a brief move lower. This also came as the dollar temporarily strengthened. Yesterday, however, the opposite picture emerged and one that more fits with the usual pattern of precious metal price movements: the negative jobless claims print exacerbated recession fears, which supported defensive assets such as gold. This morning, gold is trading around the $1,720/oz mark amid burgeoning expectations of further easing of monetary policy globally this year and next. The market is currently pricing in a 40% likelihood of another Fed rate cut by February 2021. Today, the focus will mainly be on US nonfarm payrolls (15:30 Moscow time). The consensus expects a 22 mln drop in payrolls and an unemployment rate of 16%. However, we do not necessarily think that a worse than expected reading would trigger a strong rally in gold. Gold has been trading within what has proven to be a rather stubborn range of $1,700-1,720/oz. We think a break out of that range would require a strong new catalyst such as moves from central banks or a renewal of geopolitical