Commodities Daily - November 17, 2020

> Oil advances on further vaccine progress ahead of OPEC+ JMMC meeting. Today, oil investors will be eyeing the OPEC+ ministerial committee meeting, which could recommend changes to production quotas when all ministers meet on November 30 and December 1. We expect key alliance members Saudi Arabia and Russia to at least hint at the consensus within the monitoring committee to extend the current quotas for another three months. This in our view is likely to push Brent out of its current $43.7-44.5/bbl range toward the lower end of the next technical corridor at $45.3-46/bbl.> Gold sinks on latest vaccine news, but this time recovers swiftly. Today, investors will eye US October retail sales and industrial production. In our view, the former is likely to disappoint, while the latter may well be set to beat the consensus. In our view, gold is most likely to trade sideways today and is unlikely to fall below $1,877/oz (a break below which could cause a fall to $1,867/oz), while remaining capped below yesterday's high of $1,899/oz.OIL ADVANCES ON FURTHER VACCINE PROGRESS AHEAD OF JMMC MEETINGBrent opened yesterday slightly below $43/bbl but began to generate positive momentum and spiked to an intraday high of $44.67/bbl after consolidating around $43.5/bbl. It eventually settled at $43.82/bbl, up $1.04/bbl on the day. Most of yesterday's gains came on the back of another Covid-19 vaccine breakthrough, with Moderna saying that its vaccine was 94.5% effective in a preliminary analysis of its large, late-stage clinical trial. The news suggests that people may be much more free to fly next year, implying strong upside to jet fuel demand (and possibly a recovery to as much as 90% of the 7 mln bpd level seen in 2019), which has plummeted by 2.8 mln bpd, or almost 40% y-o-y, this year. Yesterday's EIA drilling productivity report was also upbeat, with the agency expecting US tight oil output to drop 0.139 mln bpd m-o-m to 7.51 mln bpd in December. It expects overall output to fall for a third straight month and decline in most of the seven major shale formations in December, despite the recent rise in US active oil rig counts.Today, oil investors will be eyeing the OPEC+ ministerial committee meeting, which could recommend changes to production quotas when all ministers meet on November 30 and December 1. The joint technical committee met yesterday to discuss OPEC+'s compliance with the pledged production cuts, which was a disappointing 96% in October despite some countries pledging to make compensatory cuts for past excess production. Reuters citing OPEC+ sources reported that Russia's cumulative overproduction reached 0.531 mln bpd while Iraq's stood at 0.61 mln bpd. OPEC+ is well aware that regardless of the recent positive vaccine developments, oil demand is likely to drop seasonally Q-o-Q in 1Q21. If the group moves to ease the cuts as planned (production will be raised by 2 mln bpd in January, lowering the total cut to 5.7 mln bpd), crude stocks will almost certainly build, but we think OPEC+ wants to avoid that at all costs as sentiment remains fragile. Energy Aspects has reported that communications within OPEC suggest the alliance is firmly focused on fundamentals, which are regarded as weak, rather than on the eventual demand uptick once the vaccine is available, which is six to nine months away. To ensure crude stocks continue to draw throughout 2021, OPEC+ needs to extend the current 7.7 mln bpd production cuts by three months, and we think it is likely to do so. We also believe that a possible six-month delay is also being considered, although we see as unlikely. With growing optimism over a vaccine, the group may not feel compelled to move the end of the deal from April 2022 to end-2022 or to deepen the cuts. Today, we expect key alliance members Saudi Arabia and Russia to at least hint at the consensus within the monitoring committee to extend the current quotas for another three months. This, in our view, is likely to push Brent out of its current $43.7-44.5/bbl range toward the lower end of the next technical corridor at $45.3-46/bbl.GOLD SINKS ON LATEST VACCINE NEWS, BUT THIS TIME RECOVERS SWIFTLYAfter advancing to almost the $1,900/oz mark early yesterday, gold prices began to consolidate in a $1,890-1,895/oz range before sinking to an intraday low of $1,865/oz. The latter was a reaction to a new round of positive Covid-19 news, as Moderna announced preliminary, unaudited results showing its vaccine to be 94.5% effective in a late-stage trial. Yesterday's correction was much weaker than the $110/oz plunge last week after Pfizer announced its own vaccine's test results. Later, gold began to pare these losses, swiftly rebounding back to $1,895/oz during the US trading session. We think this episode suggests that further positive vaccine news is likely to have a smaller negative impact on the gold price. In our view, gold is likely to continue behaving more like a risk asset, falling when investor confidence is poor and rising when it improves. We would argue that longer-term, upbeat vaccine news is positive for gold as a hedge against inflation, as a vaccine could accelerate the global economic recovery, boosting inflation expectations as central banks and governments continue to implement loose monetary and fiscal policies to support growth. Yesterday, President-elect Joe Biden called on Congress to come together and pass a new coronavirus relief package, which is encouraging for gold bulls. This morning, meanwhile, investors are digesting the news that the Trump administration is preparing a human rights and trade crackdown on China in the next two months in a bid to force Biden to continue a hardline approach after he takes office on January 20. Today, investors will eye US October retail sales and industrial production. In our view, the former is likely to disappoint, while the latter may well be set to beat the consensus. In our view, gold is most likely to trade sideways today and is unlikely to fall below $1,877/oz (a break below which could cause a fall to $1,867/oz), while remaining capped below yesterday's high of $1,899/oz.