Commodities Daily - November 27, 2020

> Oil prices ease ahead of OPEC+ meeting early next week. Today, investors will eye the November eurozone consumer confidence and business climate indexes, which we think are likely to be downbeat and put up moderate headwinds for oil prices. We think that Brent is likely to hold within a $47.5-48.4/bbl corridor today. We note that a break below that could open the way toward the $46.9-47.2/bbl range while a break above it could lead to gains into the $48.7-49.2/bbl range.> Gold holds above $1,800/oz mark, mirroring dollar momentum. The euro slightly strengthened against the dollar this morning, supporting gold around $1,810/oz on what seems to be an improving pandemic situation in Europe. We think gold is more likely to bounce into the $1,818-1,827/oz range today than to move closer to its 200d MA support level, which now stands at $1,800/oz.OIL PRICES EASE AHEAD OF OPEC+ MEETING EARLY NEXT WEEKHaving peaked near $49.1/bbl at the start of the day yesterday, front-month Brent began to slide toward $48/bbl, mirroring EUR/USD (which started to lose momentum following the release of a downbeat German consumer confidence reading) and the FTSE 100. The reemergence of virus concerns appears to have weighed on markets yesterday, as several scientists voiced doubts about AstraZeneca's vaccine. In addition, the ECB minutes stressed that the economic recovery had lost momentum in 4Q20 and that growth risks remain skewed to the downside. Brent eventually settled at $47.8/bbl, $0.8/bbl below the previous settlement. Today, investors will eye the November eurozone consumer confidence and business climate indexes, which we think are likely to be downbeat and put up moderate headwinds for oil prices. We think Brent is likely to hold within a $47.5-48.4/bbl corridor. We note that a break below that could open the way toward the $46.9-47.2/bbl range while a break above it could lead to gains into the $48.7-49.2/bbl range. On Monday, OPEC is to hold an online ministerial meeting, followed by a Tuesday gathering of the full 23-country OPEC+ alliance to decide on the future of the production cuts. There are some sore spots, and if past meetings are any guide, traders may face a long 48 hours. The UAE this month reportedly said that it was contemplating leaving OPEC (with investors fearing low compliance from the UAE next year), while Nigeria has tried to get some of its oil blends excluded from its quota and Iraq has voiced frustration over OPEC's "one-size-fits-all" model. However, according to the latest insight from Reuters, which cites sources close to OPEC+, the group is leaning toward delaying the previously planned 2 mln bpd increase in oil output in January in order to support the market during the second wave of Covid-19 amid rising Libyan output (which recently surged in excess of 1 mln bpd) and despite the strong rise in oil prices in November. For all the optimism about a vaccine and higher oil demand, the overhang that built up in crude and products over 5m20 will still take a few quarters to absorb. Meanwhile, the current OPEC+ deal is primarily aimed at rebalancing the oil market, meaning its job will not be considered done until the overhang is run down. Global crude oil stocks rose by around 800 mln bbl in total in 5m20, though at least half of this build has already been wiped out. Much of the draw has taken place on water, where volumes have fallen by 280-300 mln bbl since peaking in May and are now back at the five-year average. Onshore crude stocks have also been drawing at a steady pace, with China leading, while the OECD countries will need at least three more quarters to draw a further 80-100 mln bbl. All in all, if OPEC+ decides to extend the current production cuts into 2021, then the crude overhang should disappear by July; if not, it could take the entire year. The group understands this and that crude stocks are likely to build in 1Q21 if it raises production quotas as currently planned. Despite recent patches of dissent within the group, we believe there is still a broad consensus within OPEC+ (including Russia) to extend the current 7.7 mln bpd of cuts into 1Q21. Brent has surged almost $13/bbl in November, strongly suggesting that the market has almost fully priced in a delay to the OPEC+ production increase. This means there would be limited price upside following such a decision (we think Brent would at best peak at $51/bbl in December), but it also signifies that if the group fails to deliver this delay, prices could retreat toward $40/bbl on the realization that crude stocks would start to build in 1Q21.GOLD HOLDS ABOVE $1,800/OZ MARK, MIRRORING DOLLAR MOMENTUMGold was trading within the $1,807-1,817/oz range yesterday, with upside capped by dollar appreciation (EUR/USD briefly slid below 1.190 from 1.194) following the release of a downbeat German consumer confidence index. Also weighing on EUR/USD and thus gold were headlines that AstraZeneca faces tricky questions about the success rate of its vaccine, which could hinder its chances of obtaining speedy regulatory approval in the US and EU. Furthermore, the ECB minutes stressed that the economic recovery lost momentum moving into 4Q20, underscoring that the risks to growth remain on the downside. Given that the US markets were closed for the Thanksgiving holiday, relatively thin liquidity dissuaded investors from making any decisive moves.The euro slightly strengthened against the dollar this morning, supporting gold around $1,810/oz on what seems to be an improving pandemic situation in Europe. The focus today will be eurozone economic confidence for November, and trading should be quite calm as the US remains on holiday. Gold will continue to be driven by broader market risk sentiment, which could encourage traders to take advantage of some meaningful opportunities on the last day of the week. We think gold is more likely to bounce into the $1,818-1,827/oz range today than to move closer to its 200d MA support level, which now stands at $1,800/oz. This weekend's trade negotiations between the UK and the EU could form the headlines early on Monday.