Commodities Daily - November 11, 2021

> Oil drops amid global risk-off, mixed EIA inventory data. This morning, Brent is trying to pare back some of yesterday's losses and is currently trading near $83/bbl. There are no major economic data releases on today's agenda. In our view, Brent is likely to stabilize near $83/bbl, while the focus in the oil market could return to potential actions the White House could take to rein in domestic prices, even including a possible ban on US oil exports, a measure that would weigh on WTI and support Brent.> Gold rallies in response to elevated US CPI reading. Gold jumped from $1,830/oz to $1,850/oz yesterday, while the US 10y Treasury yield surged from 1.44% to 1.57%. Gold is trading near $1,850/oz as we write. Today's data releases will be limited due to the Veterans Day holiday in the US. We expect bullion to trade in a $1,830-1,860/oz range today.> Metals mostly higher as investors weigh impact of US inflation data. Base metals traded mostly higher yesterday as investors assessed what higher US inflation means for commodities: either as a reason to pick up commodities as a hedge against inflation or a harbinger of a potentially more hawkish Fed that could take away some of the liquidity from commodity markets.OIL DROPS AMID GLOBAL RISK-OFF, MIXED EIA INVENTORY DATAYesterday, Brent fell from $85.5/bbl to $82.1/bbl alongside a decline in stock markets as the dollar surged to a one-year high on a higher than expected US October CPI print, which rekindled bets on an earlier Fed rate hike. US consumer prices rose at the fastest annual pace since 1990 (6.2% y-o-y) in the month of October (and they were up 0.9% m-o-m), cementing the notion that high inflation is a hallmark of the ongoing pandemic recovery and continues to erode consumers' spending power even as wages surge. Higher prices for energy, shelter, food and vehicles provided a major boost to the extraordinarily high October reading. Against a backdrop of solid demand, businesses have been steadily raising prices for consumer goods and services, as supply chain bottlenecks and a shortage of qualified workers have been driving up their costs.The weekly EIA inventory report, meanwhile, showed a 1 mln bbl buildup in crude inventories last week, while the market had been expecting a draw. The biggest build was on the West Coast, where refineries are still struggling to restart units after the torrential rains that hit parts of California at the end of October. Gasoline inventories fell by 1.56 mln bbl to 212.9 mln bbl, as demand (the four-week average) rose for the second consecutive week to 9.43 mln bpd as workers slowly but surely returned to offices, although many companies have adopted a hybrid working schedule for the time being.The high demand also helps explain why retail gasoline prices are at the highest levels since 2014. Demand is slowly approaching the 2019 levels (it stood at 9.46 mln bpd at the same point in 2019). The recovery in gasoline demand will also depend on the weather from now on, since people drive less as temperatures drop. Distillate stocks fell 2.6 mln bbl to 124.5 mln bbl, with demand rising by 0.6 mln bpd w-o-w, the biggest increase since mid-September. The upbeat weekly refined product data was not enough to offset the surprise build in crude stocks, and front-month Brent eventually settled at $82.64/bbl, $2.14/bbl below the previous settlement. This morning, Brent is trying to pare back some of yesterday's losses and is currently trading near $83/bbl. There are no major economic data releases on today's agenda, while trading in the US could be subdued due to the Veterans Day holiday. We think Brent is likely to stabilize near $83/bbl, while the focus in the oil market may return to potential actions the White House could take to rein in domestic prices, even including a possible ban on US oil exports, a measure that would weigh on WTI and support Brent. It was only six years ago that Congress lifted a 40-year-old ban on US oil exports, which dramatically altered global crude flows. These days, shipments from the US often surpass those of every OPEC nation aside from Saudi Arabia. Backtracking now would make the country's benchmark WTI crude cheaper, which in turn would hurt shale drillers, who are still continuing to recover from last year's unprecedented market crash. Meanwhile, refiners on the US Gulf Coast that depend on imported oil might end up paying more for foreign barrels in a global market deprived of US LD RALLIES IN RESPONSE TO ELEVATED US CPI READING Gold broke through significant resistance at $1,830/oz yesterday and climbed all the way to $1,850/oz, its highest level in five months. The US 10y Treasury yield jumped from 1.44% to 1.57%. The 10y real yield, which includes inflation expectations, rose more moderately, from -1.21% to -1.18%. EUR/USD dropped from 1.159 to 1.148, creating a headwind for bullion. The main driver yesterday was the US consumer price index for October, which came in at 0.9% m-o-m, above the consensus forecast of 0.6%, while in annual terms it was up 6.2%, the highest reading since 1990. Both statistics exceeded all estimates in a Bloomberg survey of economists. The core CPI, which excludes food and energy, also rose more or less above consensus, causing concerns over stickier inflations than Fed officials have been suggesting. Inflation expectations moved higher as seen in the difference between nominal and real Treasury yields, and gold drew support yesterday for its role as a hedge against price increases in the face of a Fed that appears resolved to be patient and dovish. San Francisco Fed President Mary Daly asserted that now is not the time for the regulator to change its mind on raising interest rates. US weekly initial jobless claims reached 267k last week, the lowest reading since March 2020.Gold is trading near $1,850/oz as we write. Today's data releases will be limited due to the Veterans Day holiday in the US. The ECB economic bulletin and European Commission's economic forecast are due later today. We expect bullion to try to consolidate at current levels on the back of limited data releases today and trade in a $1,830-1,860/oz TALS MOSTLY HIGHER AS INVESTORS WEIGH IMPACT OF US INFLATION DATAYesterday, base metals closed in the green, although copper was an exception. The three-month LME contract on copper was down 0.21% (-$20 from the previous day's close) to $9,533/tonne, aluminum added 0.84% (+$21) to $2,578/tonne, nickel surged 1.82% (+$353) to $19,754/tonne, while zinc was up 0.32% (+$10) to $3,292/tonne. Investors were weighing the surge in US inflation, which is positive for commodities, which can serve as a hedge against higher prices. On the other hand, the steady rise in prices is casting doubt about the view that inflation is transitory and could lead to the Fed becoming more hawkish. This is negative for metals.Copper moved against the pack yesterday, as there are risks that the LME will change the rules for withdrawals from inventories after it announced some measures to stop the outflow of the metal from inventories. Nevertheless, copper is well supported by solid fundamentals, particularly as concerns over supply from Latin America have been growing by the day. Halts in production and blockades at roads have become more frequent, while protests also rage in the region. The unrest and social tension are adding fuel to investors' fears about whether the region will be able to increase output next year as has been expected. Hence, concerns over supply are partly offsetting fears over the slowing Chinese economy (meaning weaker demand for metals). Time will tell which of these factors ends up having more of an effect.