Commodities Daily - November 12, 2020

> Oil stabilizes ahead of monthly IEA report, weekly EIA inventories. Following Brent's failure yesterday to secure above the $45.1/bbl resistance level, there is now a high risk that it will slide into the $42.2-42.9/bbl range, especially if the monthly IEA report is downbeat. In our view, however, this will be avoided, as we think the expectedly upbeat weekly EIA inventory update will be able to overturn any bearish momentum and push Brent toward resistance at $44.3/bbl, with a break above opening the way to $45.1/bbl.> Gold inches lower amid further dollar gains. Today will see speeches by the heads of the ECB, Fed and BoE at the ECB's annual central banking forum. The US CPI and weekly jobless claims data will be in focus later in the day. We think gold is likely to test resistance at $1,877/oz today, though there is a high risk that it could retest support at $1,853/oz in the event of downbeat jobless claims data, as the recent surge in infections has dampened activity in the services sector, which could feed into an uptick in jobless claims.OIL STABILIZES AHEAD OF MONTHLY IEA REPORT, WEEKLY EIA INVENTORIESHaving started yesterday trading at $43.6/bbl, front-month Brent climbed to as high as $45.3/bbl midday, only to slide back to slightly below $44/bbl. It eventually settled at $43.80/bbl, fixing $0.19/bbl above the previous settlement. One of the reasons behind yesterday's correction was the release of the monthly OPEC report, which contained downward revisions to last month's oil demand estimates for this year (-0.28 mln bpd) and next (-0.58 mln bpd). For 2020 and 2021, Europe saw the biggest downward adjustments. The North American demand estimates were also lowered, while China's were raised. The report noted that sluggishness in transportation and industrial fuel demand is now assumed to last until mid-2021 and also that an effective and widely distributable vaccine could support the economy as early as 1H21, although according to Reuters an OPEC source said this was not yet factored in to the forecasts. Important to note is that this week's vaccine news has supported Brent's three-month time spread, which was $0.78/bbl in contango, which is the narrowest since July, signaling that the over-supply concerns have eased. We note that this report from the OPEC Secretariat, perhaps with some minor tweaks, will be on the table at the OPEC+ meeting on November 30-December 1, when a decision on production quotas next year will be made. The weaker demand outlook supports the case for OPEC+ to delay the scheduled boost to output in January. Meanwhile, Algeria's energy minister yesterday highlighted the "possibility of extending today's production adjustments into 2021, as well as deepening these adjustments, should market conditions require." Today, Bloomberg reports that OPEC+ is considering keeping additional supply off the market for three to six months, citing several unnamed delegates. Today, oil investors will take a close look at the IEA monthly report. The monthly EIA and OPEC reports released earlier this week both featured downward revisions to oil demand estimates for next year. The weekly EIA inventory update is due at 19:00 Moscow time. In our view, it is likely to be upbeat, showing a 2-3 mln bbl decrease in crude stocks. We note that this week's API report also showed decreases in both gasoline and distillate stocks. The Bloomberg consensus, meanwhile, is for a 1.9 mln bbl crude stock draw, a 0.4 mln bbl build in gasoline stocks and a 1.65 mln bbl draw in distillate stocks. Following Brent's failure yesterday to secure above the $45.1/bbl resistance level, there is now a high risk that it will slide into the $42.2-42.9/bbl range, especially if the monthly IEA report is downbeat. In our view, however, this will be avoided, as we think an upbeat EIA inventory update will be able to overturn any bearish momentum and push Brent back toward resistance at $44.3/bbl, with a break above possibly opening the way to $45.1/bbl.GOLD INCHES LOWER AMID FURTHER DOLLAR GAINSGold was trading near $1,880/oz yesterday morning but slid to $1,855/oz as the dollar gained ground, with EUR/USD falling to 1.175 after having traded at almost 1.192 on Monday before the upbeat vaccine news broke out. Rising infections in Europe and the US continue to weigh on EUR/USD, forcing investors into the safe-haven dollar and outweighing news of the vaccine breakthrough. ECB President Christine Lagarde yesterday expressed caution, highlighting that although vaccine the news looks encouraging, "we could still face recurring cycles of accelerating viral spread and tightening restrictions until widespread immunity is achieved." She added that this implies the economic recovery "may not be linear, but rather unsteady, stop-start and contingent on the pace of vaccine rollout." Regarding further monetary stimulus this year, she again suggested that the ECB is likely to further cut borrowing costs for banks and adjust its pandemic-related asset purchase program. Gold is trading near $1,870/oz as we write, and aside from the exhausting US election and Pfizer vaccine news, markets are also keeping an eye on the escalating political situation in Hong Kong following a threat from US National Security Adviser Robert O'Brien that the US could place new sanctions on China or Hong Kong in response. Today will see speeches by the heads of the ECB, Fed and BoE at the ECB's annual central banking forum. The US CPI and weekly jobless claims data will be in focus later in the day. We think gold is likely to test resistance at $1,877/oz today, though there is a high risk that it could retest support at $1,853/oz in the event of downbeat jobless claims data, as the recent surge in infections has dampened activity in the services sector, which could feed into an uptick in jobless claims.