Commodities Daily - November 23, 2021

> Oil stabilizes as investors assess OPEC+ response ahead of possible SPR release announcement. We see something of a binary situation shaping up today. If joint SPR releases of around 80-100 mln bbl are in fact announced, Brent could possibly test support at $76.8/bbl (its 100-day moving average), although we do not expect a deeper dive beyond that. However, if a smaller SPR volume is announced, Brent could even start to generate positive momentum and rise toward $81.5/bbl (its 50-day moving average), given that such a move was already priced in.> Gold falls after Powell nominated for new term as Fed chair. Gold fell from $1,845/oz to $1,805/oz yesterday, while the US 10y Treasury yield surged from 1.55% to 1.63%. Gold is trading near $1,805/oz as we write. Today, the market awaits preliminary November IHS Markit PMI readings for the US and eurozone. We expect bullion to test support at $1,800/oz.> Base metals extend gains; iron ore still vulnerable to potential regulatory moves. Base metals traded higher yesterday amid still-elevated volatility. We expect metals markets to remain volatile in the near future, as prices have become extremely sensitive to developments on both the demand and supply sides. Iron ore is on the rise for the time being, but it is likely to face pressure from regulatory moves in the coming weeks.OIL STABILIZES AS INVESTORS ASSESS OPEC+ RESPONSE AHEAD OF POSSIBLE SPR RELEASE ANNOUNCEMENTYesterday, Brent bounced back from under $78/bbl to $80/bbl. This came after a $4/bbl selloff on Friday. Investors are focused on whether OPEC+ will counter a potential joint SPR release by major crude importers by not restoring as much crude to the global market. OPEC+ has already rebuffed calls from US President Joe Biden and others earlier this month to speed up the return of supplies halted during the pandemic. Bloomberg has cited OPEC+ delegates as saying that even the modest production increase they have penciled in may now be re-evaluated when the group meets next week. This morning, Brent is under pressure, hovering just below $79.5/bbl, with recent media reports suggesting that the US is preparing to announce an SPR release today (this could come during Biden's scheduled speech about steps that will be taken to temper gasoline prices) and potentially in conjunction with India, Japan and South Korea. China has been releasing oil for several months now and even started to publicly auction barrels in an effort to talk the market down. There are rumors of another 7 mln bbl of SPR releases. Perceived cooperation on releasing oil reserves would be an easy gesture from Beijing, given that it is already carrying out releases. It also bears highlighting that any oil release from the Chinese SPR needs to be refilled within 90 days. This is true for all Asian SPRs, except Japan, which has already released 4.2 mln bbl this year and has at least 20 days more forward cover than the IEA requires. But South Korea and India will both have to refill next year alongside any new Chinese releases, which will support market fundamentals in 2022.We see something of a binary situation shaping up today. If joint SPR releases of around 80-100 mln bbl are in fact announced, Brent could possibly test support at $76.8/bbl (its 100-day moving average), although we do not expect a deeper dive beyond that. However, if a smaller SPR volume is announced, Brent could even start to generate positive momentum and rise toward $81.5/bbl (its 50-day moving average), given that such a move was already priced LD FALLS AFTER POWELL NOMINATED FOR NEW TERM AS FED CHAIRGold fell from $1,845/oz to $1,805/oz yesterday, while the US 10y Treasury yield surged from 1.55% to 1.63%. Meanwhile, EUR/USD slipped from 1.129 to 1.124, creating additional headwinds for bullion. These moves were driven by macro data showing further signs of improvement in the US economy, and also the reappointment of Jerome Powell as Fed chairman. The Chicago Fed's national activity index rose to 0.76 in November, topping the consensus estimate of 0.1, while US existing home sales posted an increase of 0.8% in October, versus an expected 1.4% drop. Both data points supported the case for the Fed to more aggressively tighten monetary policy. They therefore pushed Treasury yields higher, which weighed on gold, a non-interest bearing asset. Powell's being granted another term also put pressure on bullion, as the current chairman is generally seen as somewhat more hawkish than Lael Brainard, the other candidate the White House considered for the role. Brainard was instead promoted to vice chair. During the official White House event, Chairman Powell acknowledged that inflation has taken a toll on American families. Overall, while we would not expect a rapid hawkish shift from the Fed, with Powell set to remain at the helm we think we are likely to see further hawkish comments from Fed representatives calling for faster QE tapering and rate hikes as early as next year, as we saw last week.During the Asian trading session today, gold remained near $1,805/oz. The market awaits preliminary IHS Markit November PMI readings for the US and eurozone. The PMIs are expected to show further signs of economic improvement, which would not bode well for gold. Also looming on the macro calendar is the October reading of US PCE inflation, which is due tomorrow. This price gauge is one of the main indicators the Fed looks at when deciding on monetary policy. A high reading, which seems pretty likely given what we have seen from other inflation indicators, could provide headwinds for gold, especially since the central bank already seems less accommodative than it was at the start of the month. We expect bullion to test support at $1,800/oz SE METALS EXTEND GAINS; IRON ORE STILL VULNERABLE TO POTENTIAL REGULATORY MOVESBase metals closed in positive territory yesterday. Three-month LME contracts on copper rose 0.83% (+$80/tonne) to $9,727/tonne, aluminum edged up 0.37% (+$10/tonne) to settle at $2,690/tonne, nickel climbed 1.46% (+$292/tonne) to $20,336/tonne and zinc surged 3.41% (+$111/tonne) to $3,349/tonne.High volatility persisted in the base metals markets yesterday, with prices extremely sensitive to news concerning the supply-demand balance. While China's property slowdown continues to weigh on copper prices, some experts and market participants still expect the authorities to employ some monetary easing to stimulate the sector and the economy as a whole. While such a possibility should not be ruled out, it seems more likely to us that the authorities will opt for more targeted stimulus aimed at green industries and those that have suffered the most amid the ongoing slump, and perhaps small businesses as well. While copper inventories are extremely low, mining is starting to ramp up. We think we are likely to see a more balanced market in 2022 thanks to newly mined copper from Latin America and Congo, which is likely to put a lid on prices.Meanwhile, iron ore prices have also been climbing higher, with futures in Shanghai now trading above $90/tonne. The uptrend has been driven by the news that regulations in the property market might be loosened. Despite the continued weakness in sales, new starts, completions and land purchases, signs are surfacing that support will be provided to the sector. However, there are still grave concerns over the possible implications of a potential tightening in environmental regulations for the Chinese steel sector, the main consumer of iron ore. Downstream demand remains under pressure, as regulators are trying to curb emissions from the steel industry, which is responsible for around 15% of total carbon emissions in China. Steel mills will need time to comply with industry controls in order to resume production, and we do not expect these controls to ease in the winter months given the authorities' commitment to ensuring blue skies and clean air during the Olympics. We expect iron ore futures to face pressure in the months to