Commodities Daily - November 30, 2020

> Oil under pressure ahead of today's OPEC video conference. Today investor attention will be on the OPEC video conference, which is scheduled to begin at 16:00 Moscow time. Yesterday's preliminary ministerial consultations (which included Saudi Arabia and Russia) reportedly failed to reach a compromise on the duration of the rollover of the current deal. Today's focus will also be on the monthly EIA-914 production report, with Reuters also likely to publish its OPEC production estimate for November. We expect investor jitters from today's OPEC meeting (which could expose the dissent within the group) ahead of tomorrow's decisive OPEC+ meeting to push Brent down from its current $47.5-48.4/bbl range toward support at $46.7/bbl, despite the release of upbeat Chinese PMIs for November this morning.> Gold freefalls despite weaker dollar, breaking below key $1,800/oz support. Eurozone finance ministers meet today and tomorrow, while NATO foreign ministers meet today. UK mortgage approvals, German CPI, and a range of US releases, including pending home sales, are due today as well. Following the latest gold price correction, we note that if the losses are extended and gold breaks through support at $1,767/oz (which it failed to do this morning), then it could fall into the $1,712-1,739/oz range. However, we consider that unlikely today, with gold attempting to break above the $1,783/oz resistance level as we write, supported by dip-buying amid the weaker dollar.OIL UNDER PRESSURE AHEAD OF TODAY'S OPEC VIDEO CONFERENCEThe current front-month Brent contract (for January) retreated to $47.3/bbl on Friday morning before recovering to $48.4/bbl during the European session and eventually settling at $48.18/bbl, up $0.38/bbl on the day. The January contract expires today, with the more actively traded February contract (which settled at $48.25/bbl on Friday) to become the front month gauge tomorrow. Last week, these two contracts flipped into backwardation after a prolonged period of contango, signifying that oversupply fears are easing. Today investor attention will be on the OPEC video conference, which is scheduled to begin at 16:00 Moscow time. Yesterday's preliminary ministerial consultations (which included Saudi Arabia and Russia) reportedly failed to reach a compromise on the duration of the rollover of the current deal. Bloomberg has cited a delegate as saying that informal discussions suggested that participants were leaning toward keeping production curbs at 7.7 mln bpd into 1Q20, although the UAE and Kazakhstan are opposed. Reuters is reporting that talks are now focusing on extending the current cuts by three to four months or gradually increasing output, not on deeper cuts or a six-month rollover.On Friday, we noted that the group understands that crude stocks are likely to build in 1Q21 if it raises production quotas as 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 (with Brent likely to rebound to $49/bbl following tomorrow's announcement), 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.Today's focus will also be on the monthly EIA-914 production report, which will reveal the actual level of US oil production in September, while Reuters is also likely to publish its OPEC production estimate for November. We expect investor jitters from today's OPEC meeting (which could expose the dissent within the group) ahead of tomorrow's decisive OPEC+ meeting to push Brent down from its current $47.5-48.4/bbl range toward support at $46.7/bbl, despite the release of upbeat Chinese PMIs for November this morning. Chinese factory activity expanded at its fastest pace for more than three years (the manufacturing PMI rose to 52.1 from 51.5 last month) while the services PMI spiked from 52.1 in October to an eight-year high of 56.4. This supports the view that the world's second-largest economy is firmly on track to become the first to completely shake off the effects of widespread industry shutdowns. The oil price today could also receive support from rising tension in the Middle East fueled by the assassination of Iran's top nuclear scientist last week and a rocket attack on an oil refinery in northern Iraq.GOLD FREEFALLS DESPITE WEAKER DOLLAR, BREAKING BELOW KEY $1,800/OZ SUPPORTAfter trading around $1,810/oz during the first half of the day on Friday, the gold price began to ease toward $1,805/oz ahead of the US session. Gold then broke below the key support level of $1,800/oz, which represents the upward-trending 200d moving average. By late in the day, gold was trading around $1,775/oz and around $1,765/oz this morning. This adds to the bearish narrative that has surrounded gold since the rally that had started back in 2018 began to falter above $2,075/oz in August. Meanwhile, the optimism about vaccine prospects keeps pushing investors out of gold, with the breach of $1,800/oz another psychological hit. This came despite further dollar weakening (also on vaccine optimism) - our FX team thinks that EUR/USD could head to 1.20 today unless ECB President Christine Lagarde talks it lower in a speech.Eurozone finance ministers meet today and tomorrow, while NATO foreign ministers meet today. UK mortgage approvals, German CPI, and a range of US releases, including pending home sales, are due today as well. Fed Chair Jerome Powell and US Treasury Secretary Steven Mnuchin will testify to Congress on the effectiveness of Covid-related stimulus measures tomorrow and Wednesday, while tomorrow will also see a fresh OECD economic outlook. Powell will be speaking, we note, amid speculation about further Fed action at its next meeting in mid-December. Wednesday will see the US ADP employment report and the Fed Beige Book. Services and composite PMIs come out over the course of Thursday. US nonfarm payrolls are due Friday. We believe the potential combination of Janet Yellen at the Treasury Department and Powell at the Fed would lead to looser monetary policy and massive fiscal stimulus, supporting the long-term bullish narrative for gold, in particular a rapid post-pandemic rebound, as the dollar retreats and inflation expectations rise. Following the latest gold price correction, we note that if the losses are extended and gold breaks through support at $1,767/oz (which it failed to do this morning), then it could fall into the $1,712-1,739/oz range. However, we consider that unlikely today, with gold attempting to break above the $1,783/oz resistance level as we write, supported by dip-buying amid the weaker dollar.