Commodities Daily - November 3, 2021

> Oil prices under pressure ahead of EIA weekly inventory report. This morning, Brent slid to as low as $83.27/bbl in the wake of yesterday's API report, which showed yet another strong crude oil inventory build and contained mixed refined product data. Meanwhile, US President Joe Biden blamed OPEC+ for fueling inflation again ahead of the group's meeting tomorrow to decide on output. In our view, today's EIA report is likely to be upbeat, pushing Brent toward $84.5/bbl. However, later in the day oil prices will probably come under pressure following the FOMC meeting, as the Fed is likely to start rolling back its support for the US economy by scaling back its asset-purchase program.> Gold slides ahead of outcome to Fed meeting. Gold has slipped to $1,780/oz as we write, with Fed policymakers expected to announce later today that they will start scaling back their massive asset-purchase program this month amid considerable concern over inflation and wrap it up by mid-2022. We expect that such a hawkish shift to address elevated inflation concerns will pressure gold down to at least $1,750/oz later today.> Coal halts a 10-day retreat, Fed meeting in focus. Base metals traded somewhat lower yesterday though generally remaining in the sideways trend that has been in place since late last week. Some metals are being strongly supported by tight fundamentals, copper in particular. Meanwhile, coal is finally in the black today after touching a support level yesterday. With all eyes on Fed today, there could be increased volatility in commodity markets.OIL PRICES UNDER PRESSURE AHEAD OF EIA WEEKLY INVENTORY REPORTBrent was down almost $1.5/bbl at $83.76/bbl midday yesterday, but it later recovered toward $84.5/bbl. Investors were continuing to assess the likelihood that OPEC+ will capitulate to pressure this week and bring back more crude production than is currently planned. Front-month Brent eventually settled at $84.72/bbl, fixing $0.01/bbl above the previous settlement. This morning, Brent slid to as low as $83.27/bbl, partly because US President Joe Biden blamed OPEC+ for fueling inflation again ahead of the group's meeting tomorrow to decide on output. Furthermore, US Secretary of State Antony Blinken pressed the United Arab Emirates to increase its supply. At present, OPEC+ is expected to stick to its current, cautious road map and endorse another 0.4 mln bpd increase in output in the month of December. However, that volume may not satisfy Washington, as gasoline prices in the US continue to rise, boosting inflation. We also note that the specter of a release of crude from the US Strategic Petroleum Reserve is still hanging over the global oil market. It is possible that a release could be coordinated in the event that the announced increase in OPEC+ production is deemed insufficient.Another factor that is pressuring oil prices this morning is yesterday's API report, which showed yet another strong crude oil inventory build (+3.59 mln bbl) and mixed refined product data (gasoline stocks fell 0.552 mln bbl and distillate stocks rose 0.573 mln bbl). In our view, today's EIA report is likely to be more upbeat, pushing Brent toward $84.5/bbl. The last EIA report showed a large build in crude stocks, while gasoline and distillate inventories fell. In today's report, we expect to see crude stocks little changed amid high exports, with refined product inventories posting a decline. Later in the day, however, oil prices will probably come under pressure following the FOMC meeting, as the Fed is likely to start rolling back its support for the US economy by scaling back its asset-purchase LD SLIDES AHEAD OF OUTCOME TO FED MEETINGGold reached an intraday peak of $1,796/oz yesterday before sliding to $1,785/oz, a move that came a day before a key decision from the Fed, with gold investors also weighing fresh all-time highs for US equities. Gold has slipped to $1,780/oz as we write, with Fed policymakers expected to announce later today that they will start scaling back their massive asset-purchase program this month amid considerable concern over inflation and wrap it up by mid-2022. We expect that such a hawkish shift to address elevated inflation concerns will pressure gold down to at least $1,750/oz later today. The language in the statement on the pace of tapering could be couched in conditional language, allowing some wiggle room for adjustments depending on shifts in the economic conditions. This could cushion the fall for gold. Prior to the end of the Fed meeting, investors will be digesting the monthly US ADP employment report for October and the US ISM service sector PMI, also for October. The former is likely to show labor supply coming back as pandemic-related unemployment assistance expired and schools reopened, with employers rapidly raising wages in response to labor shortages, though recruiting difficulties remain in place. The latter gauge likely slowed in October but is likely to reinforce the idea that supply-side problems, not demand-side troubles, are holding back growth. A reduction in Covid-19 cases is boosting traffic and client demand, keeping new orders strong and businesses optimistic about the future. On the downside, labor costs for business continue to rise, with wage growth picking up briskly amid labor shortages. Consequently, service providers are stepping up efforts to pass on higher AL HALTS A 10-DAY RETREAT, FED MEETING IN FOCUSYesterday, base metals closed in the red. The three-month LME contract on copper was down 0.62% (-$59 from the previous day's close) to $9,496/tonne, aluminum edged lower 0.99% (-$27) to $2,693/tonne, nickel dropped 0.51% (-$101) to $19,601/tonne, while zinc was down 0.45% (-$15) to $3,343/tonne.Although metals did edge somewhat lower yesterday, they generally remained in the sideways trend that had been persisting since the end of last week. Notably, the short-term copper contract continued to appreciate, trading at a high premium to futures on the LME, with the cash-to-three-month spread surging to $438/tonne after retreating from a peak of circa $1,100/tonne on October 18. While futures prices are tumbling amid growing worries about China's weakening demand as the economy is in sharp decline, surging premiums for front contracts point to a supply shortage. In fact, the market is in a serious backwardation, with inventories on the LME trending further downward. Short supply is responsible for copper hovering around its long-persisting home of around $9,500. With stocks at lows, copper production falling in Chile and a surplus expected only close to the end of 2022, we expect the metal to slide slowly, supported by the lingering deficit. Today, meanwhile, coal is trading higher following a non-stop decline after it climbed to new highs in mid-October. The most active coal contract on the Zhengzhou Commodity Exchange has bounced back to $150/tonne as of this writing. This comes after it tested resistance of $140/tonne the day before. Accordingly, base metals are trading higher too. We expect a highly volatile trading session today, with investors in anticipation of the Fed meeting at which a hawkish turn will likely be announced. With the Fed's comments on inflation and tapering in focus, a more hawkish stance could facilitate some cooling in commodity