Commodities Daily - November 17, 2021

> Oil continues to seesaw following monthly IEA report and ahead of EIA weekly inventory data. This morning, Brent is under pressure yet again and is sliding back toward $81.5/bbl as investors weigh the odds that the Biden administration will tap the US's emergency crude reserves in a coordinated move with nations such as China. Also in play has been a mixed weekly API US inventory report. We think today's EIA inventory report could contradict the API data, showing a decline in crude stocks and a modest draw in refined products, pushing Brent back to $82.5/bbl.> Gold retreats amid upbeat US data. Gold slid from $1,860/oz to $1,850/oz yesterday, while the US 10y Treasury yield climbed from 1.61% to 1.64%. Gold is trading near $1,850/oz as we write. Today, the market awaits US housing starts and building permits for October and the ECB's financial stability review report. We expect bullion to trade in a $1,830-1,860/oz range today.> Metals mostly lower on higher dollar, coal mixed. Base metals traded mostly lower yesterday amid dollar appreciation, and as investors weighed the outcome of the first meeting between the Chinese and US presidents. Coal prices are mixed, with contracts outside of China maintaining a strong correlation with the gas market.OIL CONTINUES TO SEESAW FOLLOWING MONTHLY IEA REPORT AND AHEAD OF EIA WEEKLY INVENTORY DATAYesterday, Brent slid $1.5/bbl toward $81.5/bbl following the release of the monthly IEA report, which highlighted that "a reprieve from the price rally could be on the horizon," as the market tightness is starting to ease amid a production recovery in the US and elsewhere. Another interesting takeaway was the IEA's view that rising gasoline and diesel prices create "a significant drag" on the global economy, a potentially bearish pull on crude futures longer-term. As for the near term, the IEA noted that virus outbreaks could further weaken demand just as the world starts taking to the skies again, a factor behind its bearish outlook for oil prices to the year-end. The IEA lowered its 2021 global demand growth estimate and raised its supply growth estimate. It also softened its estimates for stock draws in 2021 and now thinks that global stocks drew by an average of 1.2 mln bpd over the first three quarters of the year (factoring in 4Q21, stock draws are likely to average 1.8 mln bpd over the year). For 2022, the IEA raised its global demand forecast less than it raised its supply forecast, and in turn showed less willingness to be involved in a coordinated SPR release. In our view, we are likely to see global stockpiles draw next year, by an average of around 0.2 mln bpd.Following its declines in the wake of the IEA report, Brent began to recover amid concerns that there could be a delay in the launch of Nord Stream 2, which could cause power plants to switch to oil products from gas. Front-month Brent eventually settled at $82.43/bbl, fixing $0.38/bbl above the previous settlement. This morning, Brent is under pressure yet again and is sliding back toward $81.5/bbl as investors weigh the odds that the Biden administration will tap the US's emergency crude reserves in a coordinated move with nations such as China. The US asked China to release some of its oil reserves during the course of the ongoing discussions on economic cooperation between the two countries, the South China Morning Post has reported, citing an anonymous source. The issue was raised during the virtual meeting between the US and Chinese presidents yesterday and was also discussed during an earlier phone conversation between the Chinese foreign minister and US secretary of state. China is reportedly open to the US request, but it has not committed to anything yet, as it needs to consider its domestic consumption needs.Price headwinds have also come from the mixed weekly API report on US oil and refined product stockpiles that was released overnight. It showed a 0.655 mln bbl crude stock build, 2.79 mln bbl gasoline stock draw and 0.11 mln bbl distillate stock build. We think today's EIA inventory report could contradict the API data, showing a decline in crude stocks and a modest draw in refined products, pushing Brent back to $82.5/ LD RETREATS AMID UPBEAT US DATAGold slid from $1,860/oz to $1,850/oz yesterday, while the US 10y Treasury yield climbed from 1.61% to 1.64% and EUR/USD sank from 1.137 to 1.131, its lowest level in more than a year, creating headwinds for bullion. Gold was mainly driven lower yesterday by upbeat US data, which gave investors confidence that elevated inflation is a part of the economic recovery. Demand remains strong, as retail sales rose 1.7% in October (above the 1.4% consensus), the biggest gain in eight months, while core retail sales (which exclude gas and autos) grew by 1.4% (double the 0.7% consensus). Another positive sign for the economic recovery came from the October US industrial production figures, which saw growth of 1.6% (versus the consensus forecast of 0.9% growth). Despite record inflation readings, demand and consumer sentiment remain robust, which is a negative signal for bullion, as this could cause the Fed to adopt a more aggressive stance. St Louis Fed President James Bullard said yesterday that the Fed should be more hawkish in managing inflation risks. This placed further pressure on gold, as Bullard will become a voting member in 2022.Gold is trading near $1,850/oz as we write. Today, the market awaits US housing starts and building permits for October and the ECB's financial stability review report. We do not expect the US data due today to move gold significantly, though some Fed officials scheduled to speak could be less dovish than we have previously seen. However, the ECB report could provide a positive signal for gold should the bank describe inflation as stickier than expected. We expect bullion to trade in a $1,830-1,860/oz range TALS MOSTLY LOWER ON HIGHER DOLLAR, COAL MIXEDYesterday, base metals closed in the red, with zinc an exception. The three-month LME contract on copper was down 1.16% (-$112 from the previous day's close) to $9,561/tonne, aluminum plunged 3.11% (-$82) to $2,575/tonne, nickel was lower 1.02% (-$200) to $19,394/tonne, while zinc was up 0.19% (+$6) to $3,223/tonne.The weak dynamics across the board were driven by the stronger dollar, and as investors tried to assess the outcome of the first virtual meeting between the Chinese and US presidents. No major breakthrough was achieved between the two leaders, which proved bearish for base metals. Support for metals might emerge if the two countries reach agreements that would see trade boosted. Aluminum again turned out to be an underperformer yesterday, mainly due to the increased short positions backed by higher inventories in Shanghai. In the copper market, the unexpected squeeze seen last month is finally over as the cash to three-month spread that surged to a record $1,100/tonne in mid-October is back to normal. The figure is above zero (currently $33/tonne), meaning that the front end of the forward curve is still in backwardation, a sign that the market remains tight.Meanwhile, the coal market traded mixed yesterday, with Chinese futures on the Zhengzhou Commodity Exchange remaining in retreat (currently at $126/tonne), backed by easing supply issues in the domestic market. At the same time, European (API 2) and Australian (Newcastle) coal was higher yesterday on the back of European gas futures that returned to $1,100/mcm yesterday. Although the correlation between coal and gas futures remains high, we expect coal quotes, especially those in China, to continue sliding towards the desired level of CNY400-600/tonne in 2022. As soon as the gas crisis in Europe calms down, the arbitrage between coal contracts in China and elsewhere is likely to decrease, driving coal prices down