Commodities Daily - November 18, 2021

> Oil slides despite upbeat EIA report amid expectations of a coordinated release from strategic reserves. This morning, Brent remains under pressure and has slid to as low as $79.6/bbl, with Reuters reporting that Beijing is now in fact working on a strategic petroleum reserve release. Today, investors are eyeing eurozone October CPI, weekly US initial jobless claim and the November Philadelphia Fed manufacturing activity index. In our view, given that a potential coordinated SPR release is almost fully priced in, we think Brent will most likely rebound back above $80/bbl.> Gold makes gains as US Treasury yields decline. Gold firmed from $1,850/oz to $1,865/oz yesterday, while the US 10y Treasury yield retreated from 1.64% to 1.59%. Gold is trading near $1,865/oz as we write. Today, the market awaits the Philadelphia Fed manufacturing survey for November and US weekly initial jobless claims. We expect bullion to trade in a $1,830-1,860/oz range today.> Base metals mostly lower on risks of faster policy tightening. Base metals mostly traded lower yesterday amid growing concerns that the Fed will turn more hawkish at its next meeting. Faster policy tightening would be negative for metal prices. Meanwhile, the decline in coal prices has come to a halt thanks to a rise in natural gas prices in Europe.OIL SLIDES DESPITE UPBEAT EIA REPORT AMID EXPECTATIONS OF A COORDINATED RELEASE FROM STRATEGIC RESERVESYesterday, after hovering below $82/bbl, Brent slid to as low as $79.8/bbl and eventually settled at $80.28/bbl, $2.15/bbl below the previous settlement. This came despite the weekly EIA report having shown crude oil and refined product inventory draws. Crude inventories showed a surprise draw of 2.1 mln bbl, while the market had been expecting a build. That can be partly explained by exports, which were the highest since July. Also note that holders of physical oil are seeking to reduce inventories before December 31, the typical assessment date for taxes paid on oil held in stockpiles. Also contributing to the draw were a decrease of production to 11.4 mln bpd and increase in oil processing, as refinery rates rose for the fourth consecutive week (the refinery turnaround season is coming to an end). In December, US crude oil inventories could draw by around 6 mln bbl, as refinery runs rise to 16.4 mln bpd.Refiners should operate at higher rates, perhaps back to levels seen before Hurricane Ida, to meet current gasoline demand. Gasoline demand so far looks steady at 9.33 mln bpd (which bodes well ahead of the Thanksgiving holiday, which usually sees a spike in demand), just under where we were at the same time in 2019. That helped gasoline stocks to draw by 0.7 mln bbl, with distillate stocks falling 1.4 mln bbl. The price correction despite the upbeat EIA report comes after earlier this week the US and Chinese presidents discussed the merits of releasing oil from reserves, although no decision has yet been made, according to officials familiar with the discussions. Regarding strategic reserves, in the US reserves are periodically sold in the commercial market, while a much bigger release is being considered now. Last week, 3.25 mln bbl left the SPR, which was the biggest weekly draw since the coordinated release of emergency reserves in September 2011, following the Libyan uprising. At 606 mln bbl, the US SPR is at its lowest level since 2003, and it seems more declines are on the horizon. Everyone is looking at the SPR levels now as the government weighs selling more to contain a spike in prices at the pump. This morning, Brent remains under pressure and has slid to as low as $79.6/bbl, with Reuters (citing a spokeswoman from the National Food and Strategic Reserves Administration) reporting that Beijing is now in fact working on a release from petroleum reserves. Today, investors are eyeing eurozone October CPI, weekly US initial jobless claim and the November Philadelphia Fed manufacturing activity index. In our view, given that a potential coordinated SPR release is almost fully priced in, we think Brent will most likely rebound back above $80/ LD MAKES GAINS AS US TREASURY YIELDS DECLINE Gold rose from $1,850/oz to $1,865/oz yesterday, while the US 10y Treasury yield slid from 1.64% to 1.59%. EUR/USD edged up from 1.131 to 1.132 for its first daily gain in more than a week. Yesterday's data releases were mixed, indicating that the recovery in the US is proceeding unevenly. Housing starts declined 0.7% in October, compared with the consensus forecast of a 1.5% increase. Building permits rose 4%, while markets had expected 2.8% growth. This pushed inflation expectations down from recent highs. Declining Treasury yields and the easing dollar supported gold, as Fed officials provided further dovish signals for investors. Chicago Fed President Charles Evans said he expects inflation pressure to recede, though it could take longer than expected. San Francisco Fed President Mary Daly indicated that she has become more bullish on the economy over the past year, but she said it is too early to raise interest rates. Gold is being fueled by Fed comments that elevated inflation will prove temporary and that there is no need to interrupt the recovery with hawkish moves. Gold is trading near $1,865/oz as we write. Today, the market awaits the Philadelphia Fed manufacturing survey for November, US weekly initial jobless claims, the US leading indicators for October, and the Kansas City Fed manufacturing activity index for November. We are likely to see more positive news, with another low jobless claims reading and an improvement in manufacturing. We expect bullion to trade in a $1,830-1,860/oz range SE METALS MOSTLY LOWER ON RISKS OF FASTER POLICY TIGHTENINGYesterday, base metals closed in the red, with aluminum an exception. Three-month LME contracts on copper fell 1.62% (-$154/tonne from the previous day's close) to $9,407/tonne, nickel edged down 0.20% (-$39/tonne) to $19,355/tonne and zinc declined 0.96% (-$31/tonne) to $3,192/tonne, while aluminum rose 1.63% (+$42/tonne) to $2,617/tonne.The downward trend in metal prices continued yesterday, as investors remained concerned about the growing prospects of faster policy tightening in the US amid signs that inflation could force the Fed to taper its asset purchases and hike interest rates more quickly than had been expected. As a result, this morning copper has edged down close to support at $9,370/tonne, its 200-day moving average. Tight supply is also still providing some support to copper prices, as inventories are still low at warehouses across the globe. Investors are now looking ahead to the Fed's meeting in mid-December, which should provide them with a better understanding of the regulator's policy stance. A more hawkish message would be negative for risk assets, including commodities, while a dovish stance would most likely prolong the sideways trend in metals markets, all else equal.Meanwhile, the retreat in coal prices has come to a halt. Support has come from Europe, where natural gas is still being quoted above $1,000/mcm. With Chinese coal production having finally returned to 12 mtpd and power rationing still in place, we expect the authorities in China to maintain a tight grip on the coal market this winter. We believe China will stick to the target of CNY440 ($69) for a tonne of its 5,500 NAR coal through May 2022. We think it is only a matter of time before prices fall to the desired