Commodities Daily - October 13, 2020

> Oil prices stabilize after yesterday's downturn; OPEC monthly and EIA drilling productivity reports on the radar today. In our view, the price risks for both reports are skewed to the downside, and we expect Brent to break below technical support at $41.6/bbl, which would open the way to the next support level of $41/bbl. However, this morning's upbeat September Chinese oil import data should provide sufficient support for Brent to hold the $41/bbl mark.> Gold ticks lower as dollar gains positive momentum, which could be short-lived. We do not think that the dollar will stay strong for the rest of today, as we believe the US September inflation data is likely to come in slightly higher than expected. Also on the radar today are the German and European ZEW surveys, German CPI, UK employment data and the US small business optimism index. We think that gold is more likely to test its 50-day moving average of $1,937/oz today than fall toward its 20-day moving average of $1,904/oz.OIL PRICES STABILIZE AFTER YESTERDAY'S DOWNTURN; OPEC MONTHLY AND EIA DRILLING PRODUCTIVITY REPORTS ON THE RADAR TODAYHaving traded near $42.5/bbl at the start of the day yesterday, front-month Brent began to slide, pressured by supply constraints in the US, Libya and Norway being eased. It fell to as low as $41.40/bbl following the US open and eventually settled at $41.72/bbl, fixing $1.13/bbl below the previous settlement. Thus, the front-month contract fell below both its 100-day and 200-day moving averages, a technical sign of further selling pressure ahead. In addition, we note that the aforementioned boost to supply is hitting the market amid a resurgence in coronavirus cases globally (in particular, the UK is tightening restrictions, while Italy and the Netherlands are considering new measures), which is weighing on the prospects for an oil demand recovery.This morning, investors are digesting Chinese September commodity trade data, according to which crude oil imports rose to 11.80 mln bpd from 11.18 mln bpd in August and 10.04 mln bpd in September 2019 (though well below the record of 12.94 mln bpd imported in June). Crude imports have been on the downtrend in recent months, as in July and August crude storage facilities at major Chinese ports were almost full following purchases made during the oil price collapse in April. According to Energy Aspects, the offshore backlog in China is now clearing rapidly, falling from 80 mln bbl in August to less than 40 mln bbl, while total crude stocks in the country have dropped by 22 mln bbl over the last two weeks. Domestic demand has remained elevated and refinery throughput high, as refineries digest the record imports from earlier this year. We expect a return of aggressive Chinese crude purchases in 4Q20, which in our view should strongly support Brent and calendar spreads.Today, oil investors will be following comments from the first day of the virtual Energy Intelligence Forum, with today's speakers including the oil ministers from Nigeria and the UAE, as well as the CEOs of Saudi Aramco and Chevron. Data-wise, the focus will be the OPEC monthly report and the EIA drilling productivity report. For the former, the risks are skewed to the downside, with an upbeat revision to the 2020 and 2021 demand estimates seen as very unlikely. Meanwhile, the EIA report will unveil the agency's US shale output estimates for November - taking into account the recent slight pickup in the US rig count and the EIA's recent upgrade to its US oil production estimate for this year, the risks here too are skewed to the downside. Against this backdrop, we expect Brent to break below technical support at $41.6/bbl, which would open the way to the next support level of $41/bbl.GOLD TICKS LOWER AS DOLLAR GAINS POSITIVE MOMENTUM, WHICH COULD BE SHORT-LIVEDAfter trading near $1,930/oz at the start of the day yesterday, gold prices began to slide, ending the day within a $1,920-1,925/oz range. This morning, the yellow metal fell to as low as $1,910/oz, pressured by a globally strengthening dollar. Spurring this move have been fading prospects for a quick end to the stalemate over a new US stimulus package. House Majority Leader Steny Hoyer, a Maryland Democrat, sent out a notice to lawmakers yesterday saying "that due to the Trump Administration's failure to reach an agreement on coronavirus relief, no votes are expected in the House this week." President Donald Trump had earlier given his approval for a revised $1.8 trln stimulus proposal. The previously discussed package would have provided $1.6 trln in support, while Democrats are still seeking $2.2 trln. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin are expected to continue their talks this week to try to bridge the gap, though neither side has provided a schedule. Interestingly, market participants have been attributing the accelerating US and global market gains to hopes that a clear victory for US Democrats in the November election will mean massive fiscal stimulus to combat the Covid-19 recession, which of course would be gold price-supportive.We do not think that the dollar will stay strong for the rest of today, as we believe the US September inflation data is likely to come in slightly higher than expected. The recent US economic data has been rather strong, suggesting that a steady recovery is underway, so US inflation expectations could see another boost. This, in turn, would be supportive for gold prices. In addition, 3Q20 earnings season kicks off today in the US, with JPMorgan and Citigroup due to report. The positive momentum in the US economy in 3Q20 could translate into better than expected earnings, which would erode safe-haven demand for the dollar. Also on the radar today are the German and European ZEW surveys, German CPI, UK employment data and the US small business optimism index. Given all the above, we think that gold is more likely to test its 50-day moving average of $1,937/oz today than fall toward its 20-day moving average of $1,904/oz.