Commodities Daily - November 12, 2021

> Oil stabilizes after monthly OPEC oil market report. This morning, Brent is hovering above $82/bbl as investors look ahead to September industrial production data from the eurozone and the preliminary November reading of the University of Michigan consumer sentiment index from the US. In our view, Brent is likely to finish the week within its current $82-83/bbl range amid a lack of strong catalysts.> Gold on track for its biggest weekly gain since May. Gold advanced from $1,850/oz to $1,860/oz yesterday, while the US 10y Treasury yield edged down from 1.57% to 1.56%. Gold is trading near $1,860/oz as we write. Today, the market awaits the University of Michigan sentiment index for November, US job openings for September and eurozone industrial production for September. We expect bullion to trade in a $1,830-1,860/oz range today.> Metals mostly higher with aluminum outperforming. Base metals traded mostly higher yesterday, with aluminum leading the pack. Attention is now shifting to longer-term factors, such as China's energy consumption and emissions control, which are set to increase the price floor for aluminum given how tight the market is.OIL STABILIZES AFTER MONTHLY OPEC OIL MARKET REPORTYesterday, Brent seesawed within a $81.7-83.4/bbl range as investors focused on the growing pressure on US President Joe Biden, including from his own party, to address rising prices with consumer price growth running at the fastest pace in decades. Yesterday, investors were also digesting the monthly OPEC report, which was on the bearish side. The OPEC Secretariat slightly downgraded its previous 2021 and 2022 oil demand growth estimates. The downward revision to the 2021 global demand estimate was primarily attributable to North America, even though the report highlighted that the August data for the region showed strong y-o-y growth. Somewhat surprisingly, the agency cut its Indian demand forecast again despite the fact that recent data has suggested improvement. It also raised its forecast for China, which is also rather strange given the ongoing flight restrictions amid rising Covid-19 cases. The OPEC Secretariat made no changes to its 2021 non-OPEC supply forecast and only slightly downgraded its 2022 estimate. In our view, OPEC remains extremely bullish on 2022 supply, especially given its forecast for Russia. This month's report also included a special section on global inventories, which contained estimates that crude oil and refined product stocks fell by 342 mln bbl over the first three quarters of 2021 and had fallen by a whopping 938 mln bbl since June 2020, implying a near 600 mln bbl stock draw from June-December 2020.This morning, Brent is hovering above $82/bbl as investors look ahead to September industrial production data from the eurozone and the preliminary November reading of the University of Michigan consumer sentiment index from the US. Regarding the latter, consumer sentiment likely improved slightly in November, as new infections have ebbed further and the job market (including wage growth) has likely remained robust. Meanwhile, higher prices have weighed on sentiment somewhat. In our view, Brent is likely to finish the week within its current $82-83/bbl range amid a lack of strong LD ON TRACK FOR ITS BIGGEST WEEKLY GAIN SINCE MAY Gold rose from $1,850/oz to $1,860/oz yesterday, while the US 10y Treasury yield edged down from 1.57% to 1.56%. EUR/USD slid from 1.148 to 1.145, limiting bullion's appeal. The European Commission updated its outlook for the EU economy and is projecting 2.4% inflation in 2021, 2.2% in 2022 and 1.4% in 2023 - below the ECB's 2% target, which signals that it expects elevated prices to prove temporary, albeit the commission also indicated that supply constraints could push inflation higher. Recent unexpectedly high inflation readings in the US, China and Germany have boosted gold, while the Fed and other major central banks remain dovish. Bullion is therefore acting as a hedge against rising prices. However, we don't expect this to last long, as regulators are likely to start reacting to prevent a further surge in inflation expectations. Hawkish rhetoric from the Fed would likely pressure bullion, as its opportunity cost would increase relative to Treasury yields. We think the Fed is likely to come out with comments on monetary policy tightening at its December 14-15 FOMC meeting, where it might also increase the pace of QE tapering in response to an improving labor market. Overall, we conclude that gold's current upward momentum will prove temporary and the basic fundamental picture remains negative. Gold is trading near $1,860/oz as we write. Today, the market awaits the University of Michigan sentiment index for November, US job openings for September and eurozone industrial production for September. The consensus is calling for a modest improvement in sentiment to 72.5 from 71.7 in October and more than 10 mln job vacancies in September. The market expects a 0.5% decline in eurozone industrial production. We expect bullion to correct from current levels on the back of negative macro data for gold and to trade in a $1,830-1,860/oz range TALS MOSTLY HIGHER WITH ALUMINUM OUTPERFORMINGYesterday, base metals closed in the black, with zinc an exception. The three-month LME contract on copper was up 1.05% ($101/tonne from the previous day's close) to $9,634/tonne, aluminum surged 3.18% (+$82) to $2,660/tonne, nickel added 0.03% (+$5) to $19,759/tonne, while zinc was down 0.39% (-$13) to $3,279/tonne.The positive momentum was again led by aluminum, which is rebounding from having been hit by the success China has had in tempering coal prices. The three-month LME contract on aluminum is now 6% off of its recent low of $2,510/tonne, where the 200-day moving average acted as a strong support. Notably, more attention is now shifting to medium- to longer-term factors. In the medium term, the market is expected to remain tight, as power curbs are likely to remain in place in China in the winter period (thus threatening aluminum supply). Record deficits in the aluminum market are projected for both 2021 and 2022. In the longer run, China's policy on emissions control might provide a higher floor for quotes, given that the aluminum industry accounted for circa 5% of the nation's total emissions last year.Even if coal prices continue to retreat, we expect the positive correlation of the energy quotes with base metals prices to decrease significantly. We believe that China has almost run out of room for maneuver when it comes to controlling coal supply (i.e. emptying stocks, boosting mining, giving priority to coal transportation, etc.). Verbal interventions (warnings, etc.) and pressure on coal consumption are the two levers that remain. The latter means power rationing, which jeopardizes energy-intensive industries like aluminum smelting. With that in mind, we expect further energy conservation to prolong aluminum production cuts for at least the winter months, keeping quotes on the metal