Commodities Daily - November 9, 2021

> Oil stabilizes ahead of EIA report as investors await President Biden's move to quell high prices. This morning, Brent is trading near $83.5/bbl as today investors eye the monthly EIA oil market report, US October PPI data and the API's weekly update on US oil and refined products inventories that is due overnight. In our view, the possibility of a release from the SPR to cool prices will keep weighing on the market, thus capping Brent below $84/bbl for now.> Gold advances ahead of US inflation data. Gold climbed from $1,815/oz to $1,825/oz yesterday, while the US 10y Treasury yield rose from 1.45% to 1.49%. Gold is trading near $1,820/oz as we write. Today, the market awaits US PPI inflation for October, the NFIB small business optimism index for October and the ZEW economic sentiment survey for the eurozone for November. We expect bullion to trade in a $1,805-1,830/oz range today.> Base metal prices advance, coal at a crossroads. Base metals traded higher yesterday, supported by the risk-on sentiment that has prevailed in markets since the end of last week. Meanwhile, though the power crunch in China seems to be easing, the fundamentals suggest there could be further upside for coal prices, especially if the weather this winter is bad. However, much will depend on whether China chooses to further intervene.OIL STABILIZES AHEAD OF EIA REPORT AS INVESTORS AWAIT PRESIDENT BIDEN'S MOVE TO QUELL HIGH PRICESYesterday, Brent stabilized within the $82.5-84.0/bbl range. The recent price rally took a breather after US Secretary of Energy Jennifer Granholm said that President Biden may make an announcement to address high oil and gasoline prices this week. Brent eventually settled at $83.43/bbl, fixing $0.69/bbl above the previous settlement. Even though Granholm didn't specify any particular measures, oil investors understand that releasing crude from the Strategic Petroleum Reserve (SPR) is one option being considered. Such a step has been speculated about for some time now. We would highlight that even if this occurs, prices have bounced back within days following past SPR releases. Oil can only be drawn from the SPR in three ways: a full drawdown to counter a "severe energy interruption", a limited drawdown of up to 30 mln bbl (as during the Libyan civil war in 2011) or a drawdown for a test sale or exchange.However, there is another way the US could release barrels from the SPR quickly: front-loading the sales authorized under existing legislation. Between the financial years of 2016 and 2027, 268 mln bbl of crude is due to come out of the SPR. However, only 90 mln bbl of this has been released so far. The release of some of this oil could be accelerated. As for the IEA, each member country must hold emergency oil stocks equivalent to at least 90 days of net imports and only in the case of a severe oil supply disruption can members release these stocks as part of a collective action. The IEA can recommend a release, but every country has to agree to it. Given the lack of a specific supply disruption driving the current rally and the IEA's focus on energy transition and moving countries away from fossil fuels, the agency is unlikely to recommend such a release. This morning, Brent is trading near $83.5/bbl as today investors eye the monthly EIA oil market report, US October PPI data and the API's weekly update on US oil and refined products inventories that is due overnight. The EIA print may determine whether the Biden administration decides to tap the SPR. In our view, the possibility of a release from the SPR to cool prices will keep weighing on the market, thus capping Brent below $84/bbl for now. LD ADVANCES AHEAD OF US INFLATION DATA Gold climbed from $1,815/oz to $1,825/oz yesterday, while the US 10y Treasury yield rose from 1.45% to 1.49% and EUR/USD firmed from 1.157 to 1.159. Yesterday saw a lack of macroeconomic data, but gold found support from comments by Fed officials in the wake of last week's FOMC meeting. These comments were mostly in line with the Fed's general view that inflation is being driven by supply chain issues and that the US economy will adapt to these challenges. Chicago Fed President Charles Evans and Fed Vice Chair Richard Clarida said the expected rate liftoff would not come before the end of 2022. However, St Louis Fed President James Bullard was more hawkish, suggesting that the supply chain bottlenecks could last through 2022 and that next year could see two rate hikes. Meanwhile, the Fed published its semiannual financial stability report, which mentioned that asset prices remain vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall.Gold is trading near $1,820/oz as we write. Today, the market awaits US PPI inflation for October, the NFIB small business optimism index for October and the ZEW economic sentiment survey for the eurozone for November. Inflation readings in the US due today and tomorrow are expected to show another increase last month, which could boost inflation expectations and provide a tailwind for bullion after the Fed's moderately dovish stance last week, though it could also shift rate hike expectations forward, which would likely create fundamental pressure for gold. We expect bullion to trade in a $1,805-1,830/oz range SE METAL PRICES ADVANCE, COAL AT A CROSSROADSYesterday, base metals closed in the green. Three-month LME contracts on copper rose 1.26% (+$120/tonne from the previous day's close) to $9,638/tonne, aluminum 1.90% (+$48/tonne) to $2,605/tonne, nickel 1.06% (+$206/tonne) to $19,640/tonne and zinc 1.32% (+$42/tonne) to $3,271/tonne.Base metals were able to advance yesterday in the absence of negative news. Investors still seemed happy about the Fed's relatively dovish stance at last Wednesday's FOMC meeting, which spurred the recovery in risk sentiment late last week. Meanwhile, although the power crisis in China seems to be easing, coal prices are trending higher in both China and abroad (Newcastle and European API2 contracts have gained around 19% since plunging to lows in early November). Indeed, China's daily coal output is now around 11.7 mtpd, up around 1 mtpd m-o-m and much closer to the 12 mtpd target. Stockpiles at ports are also on the rise, while China's newly approved mines are expected to bring more coal to market after planned capacity increases take effect. However, some factors are driving coal quotes higher: there are already signs that the weather is taking a turn for the worse, with an early winter in China threatening to deepen the power crunch. The La Nina phenomenon is in full swing, and the first snow has already arrived in the northern provinces, including the coal-rich Inner Mongolia. The colder weather is likely to have a negative impact on the country's energy supply and transportation, and it could lead to further power shortages if it is particularly bad. In this case, there could be some further upside for coal prices, as long as Chinese authorities refrain from further interventions. We would not expect China to refrain from further interventions if prices fail to move toward the desired range of around $70/tonne without any assistance given the tight control it has already taken over the domestic coal