Commodities Daily - November 19, 2020

> Oil stabilizes amid mixed EIA data, tighter coronavirus restrictions and UAE's OPEC+ warning. Today, investors will eye the US weekly update on initial and continuing jobless claims, October existing home sales and the November Philadelphia Fed business outlook survey. We think jobless claims will likely continue coming down but that existing home sales may fall by less than expected, while the Philly Fed survey could surprise to the upside. Upbeat US data could support risk appetite later in the day, with Brent likely yet again to approach the $45/bbl barrier, although we do not see enough momentum for it to consolidate above this level.> Gold down on stronger dollar amid fears of economic damage from tightening lockdown measures in several US States. Apart from US jobless claims, existing home sales, and leading indicators, investors today will follow the EU leaders video conference. If EU leaders note the stabilization of the virus situation and allow for the possibility of the restrictions being relaxed starting next year, this may boost risk asset appetite, EUR/USD and gold. Against this backdrop, in our view gold is most likely to rebound back to the $1,877/oz, technical level after it slid to $1,860/oz this morning. OIL STABILIZES AMID MIXED EIA DATA, TIGHTER CORONAVIRUS RESTRICTIONS AND UAE'S OPEC+ WARNINGDuring first half of the day yesterday, front-month Brent surged from $43.5/bbl all the way to $44.9/bbl amid global market risk-on sentiment (accompanied by a weakening dollar and rising stock markets), as further positive Covid-19 vaccine news helped temper concerns about rising infection rates and the related economic damage. Drug makers Pfizer and BioNTech yesterday said that they could secure emergency US and European authorization for their Covid-19 vaccine next month after final trial results showed it had a 95% success rate and no serious side effects. However, ahead of the US session the positive sentiment began to reverse and Brent slid toward $44.4/bbl ahead of the weekly EIA inventory update, which showed a 0.77 mln bbl build in US crude oil stocks to 489.5 mln bbl last week. The build came amid a 0.4 mln bpd increase in crude oil production to 10.9 mln bpd and a 0.02 mln bpd decrease in exports to 2.75 mln bpd. US crude output appears to be on the mend after two weeks of stagnating (last week's storm activity caused limited impact). Regarding the larger trend for US crude oil production, the EIA anticipates that November production will grow and average 11.25 mln bpd, according to the outlook it published last week. However, low activity in the shale patch will soon translate into output declines, which will pull overall production down. Also note that a 0.39 mln bpd increase in refinery inputs and a 0.24 mln bpd decrease in imports were insufficient to offset the overall build. The EIA's refined product data was mixed: gasoline stocks rose 2.6 mln bbl to 228 mln bbl and distillate stocks eased 5.2 mln bbl to 144 mln bbl. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) fell by a hefty 10.15 mln bbl, also driven by a 2 mln bbl draw in the propane stocks and a strong 6.9 mln bbl draw in the "other oils" category. Brent traded within the $44.2-44.7/bbl range following the release and eventually settled at $44.34/bbl, fixing $0.59/bbl above the previous settlement. This morning, investors are digesting Bloomberg reports that UAE officials are privately considering leaving OPEC+ amid increasing frustration about what they see as an unfair allocation of output targets. This comes as OPEC+ debates whether to delay a planned easing of cuts. Such a move by the UAE would be unusual for a country that has typically avoided public clashes, preferring to resolve disputes behind closed doors. Bloomberg notes that it is unclear whether the warning is a maneuver to force negotiations over production levels or represents a genuine policy debate. Another source of headwinds for oil is the decision to shut schools in New York City amid rising infections.Today, investors will eye the US weekly update on initial and continuing jobless claims, October existing home sales and the November Philadelphia Fed business outlook survey. We think jobless claims will likely continue coming down but that existing home sales may fall by less than expected, while the Philly Fed survey could surprise to the upside. Upbeat US data could support risk appetite later in the day, with Brent likely yet again to approach the $45/bbl barrier, although we do not see enough momentum for it to consolidate above this level.GOLD DOWN ON STRONGER DOLLAR AMID FEARS OF ECONOMIC DAMAGE FROM TIGHTENING LOCKDOWN MEASURES IN SEVERAL US STATES.During first half of the day yesterday gold prices were trending higher, but failed to overcome the $1,885/oz barrier as EUR/USD yet again failed to break the 1.190 mark. Momentum in EUR/USD and gold began to turn negative with the latter sliding toward the $1,865/oz mark on concerns about the economic fallout from new restrictions in several US states and New York City. Oregon's governor announced a two-week "freeze" in her state that includes citations and fines for people who attend gatherings of more than six people. Ohio's governor this week announced a 21-day curfew from 10 pm to 5 am in his state, while California's governor announced that he was putting the "emergency brake" on reopening and economic activity in the nation's most populous state. As US fiscal stimulus negotiations struggle to progress, investors are increasingly putting their hopes in the Fed's further expanding its asset-buying campaign at the December policy meeting. Further monetary stimulus is needed to buttress the economy until a vaccine can be widely distributed (two top Fed officials yesterday held out the option of doing more). This supported gold back to $1,885/oz late yesterday. This morning, the Wall Street Journal reports that both Republican and Democratic leaders are coalescing around a strategy toward China preferred by President-elect Joe Biden, to confront allegedly unequal trade policies multilaterally rather than by the US alone. At first blush, the proposal would be negative for the dollar and bolster gold prices, as it implies a more stable and predictable policy path for major economies. Apart from US jobless claims, existing home sales, and leading indicators, investors today will follow the EU leaders video conference. The Covid situation will be discussed and, in particular, whether it is necessary and for how long to extend the current restrictions, taking into account some stabilization recently in Europe. Yesterday, a French official said there can yet be no talk of lifting the current restrictions. If EU leaders note the stabilization of the virus situation and allow for the possibility of the restrictions being relaxed starting next year, this may boost risk asset appetite, EUR/USD and gold. Against this backdrop, in our view gold is most likely to rebound back to the $1,877/oz, technical level after it slid to $1,860/oz this morning.