Commodities Daily - November 25, 2021

> Oil holds steady amid mixed EIA weekly inventory report. This morning, Brent is trading near $82.5/bbl. The highlights on today's agenda are speeches from several ECB representatives, as the macro calendar is rather sparse and all US financial markets are closed in observance of the Thanksgiving holiday. In our view, Brent is likely to continue consolidating near $82.5/bbl today amid a lack of catalysts.> Gold steady despite hawkish FOMC minutes. Gold traded sideways near $1,790/oz yesterday, while the US 10y Treasury yield slid from 1.67% to 1.64%. Gold is trading near $1,790/oz as we write. Today, market activity will be limited due to the Thanksgiving holiday in the US. As for today's events calendar, the latest ECB Monetary Policy Meeting Accounts report is the highlight. We expect bullion to trade in a tight $1,780-$1,800/oz range today.> Metals higher on potential stimulus in China. Base metals traded higher amid a move by China to increase investments in construction projects, which could potentially boost demand for metals used in construction. Supply-side issues are also supporting quotes, with such fundamentals likely to provide a floor for prices when tightening starts.OIL HOLDS STEADY AMID MIXED EIA WEEKLY INVENTORY REPORTYesterday, Brent traded sideways in a range of $81.7-83/bbl amid a mixed EIA weekly inventory report. It eventually settled at $82.25/bbl, fixing $0.06/bbl below the previous settlement. The EIA report showed a 1.02 mln bbl crude stock build to 434 mln bbl, with US crude output up 0.1 mln bpd at 11.5 mln bpd, where it was right before Hurricane Ida hit the Gulf of Mexico in late August. Also noteworthy is that after three weeks of oil outflows exceeding inflows, the US flipped back to being a net oil importer last week. A 1 mln bpd drop in exports to 2.6 mln bpd was a major contributor to the overall crude oil buildup and negated the impact of a 0.24 mln bpd increase in refinery runs to 15.64 mln bpd. Crude oil stocks at Cushing rose back above 27 mln bbl, but with the opportunity for arbitrage by exporting to Europe opening up, we expect WTI calendar spreads to strengthen again and think Cushing may soon start seeing draws again. Meanwhile, we note that after the announced 50 mln bbl US SPR release, US local refiners will be purchasing less international crude, while a large portion of the crude released will go to export markets. The EIA estimates that this could lead to US crude exports rising to an average of 3.2 mln bpd in 1H22. Commercial crude oil inventories in the Gulf of Mexico area are now expected to build by 10 mln bbl during 1Q22 (versus the 9.5 mln bbl build expected previously) and by 4.5 mln bbl in 2Q22 (versus the draw of 0.4 mln bbl expected previously). We still expect crude stocks to drop by 5.3 mln bbl across the US and by 5.7 mln bbl in the Gulf of Mexico area in the month of December.Last week, US gasoline inventories continued to slide (-0.6 mln bbl), reaching a new four-year low, as refinery runs continued to lag demand. Distillate stocks fell about 2 mln bbl as the country moved into the heating season amid a surge in diesel consumption ahead of the holidays. Demand for distillates on a four-week average rose to the highest level since February. Excluding the SPR, total petroleum stocks, which include crude and oil products, slumped to the lowest level in about two years. The main contributor to this trend, which has been in place since early October, has been the draw in gasoline stocks to a four-year low.Another important development yesterday was that OPEC's advisory body, the Economic Commission Board, said that the planned coordinated release of strategic reserves by major importers may add to the crude surplus expected early next year. This comes a week before the OPEC+ meeting, where the allies are to decide on whether to increase output in January. Also important is that yesterday the IEA's executive director accused Saudi Arabia, Russia and other major energy producers of creating "artificial tightness" in the global oil and gas markets, urging OPEC+ to accelerate the return of supplies. This morning, Brent is trading near $82.5/bbl. The highlights on today's agenda are speeches from several ECB representatives, as the macro calendar is rather sparse and all US financial markets are closed in observance of Thanksgiving. In our view, Brent is likely to continue consolidating near $82.5/bbl today amid a lack of LD STEADY DESPITE HAWKISH FOMC MINUTESGold traded sideways near $1,790/oz yesterday, while the US 10y Treasury yield slid from 1.67% to 1.64%. Meanwhile, EUR/USD sank from 1.124 to 1.120, creating headwinds for bullion. Yesterday's calendar was packed to the brim with US macro data and also featured the latest FOMC minutes. The October PCE inflation readings came out slightly below economists' expectations at 0.6% m-o-m (versus 0.7% expected) and 5.0% y-o-y (versus 5.1% expected). However, these figures were still quite high, and gold moved lower in response, as the signs of persisting inflationary pressure seemed to help make the case for more aggressive monetary policy actions. Meanwhile, weekly initial jobless claims printed at 199k, the lowest reading in decades. This was another negative sign for bullion, as a full recovery in the labor market has been the Fed's second macroeconomic goal since the pandemic began. The other macro releases from the US yesterday also mostly pointed to a strong pace of economic recovery, though durable goods orders and wholesale inventories slightly missed expectations. The FOMC minutes were surprisingly hawkish, which was interesting because the meeting was before the recent record-high inflation prints and solid jobs data. First of all, the minutes indicated that the FOMC members would be ready to discuss a faster pace of QE tapering and an earlier start to rate hikes if inflation continues to trend higher (and so far it has). Also, several members were beginning to doubt that inflation is still "transitory," and there were growing concerns that the situation had changed. Yesterday's PCE inflation reading likely only strengthened these concerns among policymakers. However, the market reaction to the Fed minutes was muted and gold held steady as Treasury yields moved lower.During the Asian trading session this morning, gold was stable near $1,790/oz. Market activity today will be limited due to Thanksgiving in the US. As for today's events calendar, the latest ECB Monetary Policy Meeting Accounts report is the highlight. The ECB publication may reveal developments in economic regulation in the eurozone and provide European policymakers' views on inflation and the economic recovery. With US investors on holiday, we expect bullion to trade in a tight $1,780-$1,800/oz range TALS HIGHER ON POTENTIAL STIMULUS IN CHINAYesterday, base metals closed in the black. Three-month LME contracts on copper were up 1.28% (+$124 from the previous day's close) to $9,835/tonne, aluminum added 1.33% (+$35) to $2,704/tonne, nickel surged 2.44% (+$497) to settle at $20,846/tonne, while zinc rose 0.64% (+$21) to $3,322/tonne.Metals got a boost from China's move to increase investments in construction projects via a local sale of special bonds. This came after a several-month slowdown in economic activity that had been pressuring commodities like copper and iron ore. The futures of the latter are back above $100/tonne, with concerns about pollution curbs now being outweighed. Demand for iron ore from steel mills might improve in the short term, but we doubt this pickup will last through the winter, as steel output will likely be curbed during the smoggy winter months.Nickel continued to lead the gains across the board as declining inventories and rising premiums for spot contracts pointed to increasing tightness in the market. LME three-month futures contracts are now at their highest levels in a month, climbing above $21,000/tonne. Zinc has also been on the rise recently, fueled by tightening market conditions. Glencore announced that it would halt output at its Italian smelter due to soaring energy prices. Meanwhile, Boliden halted production at its mine in Ireland, while traders are concerned about potential supply disruptions in Peru amid political issues. It seems that supply disruptions in almost all base metals markets will provide a solid floor to quotes once tightening begins and commodities, which are priced in dollars, feel the pressure of a stronger