Commodities Daily - October 14, 2021

> Oil prices hold steady ahead of IEA monthly and EIA weekly inventory reports. This morning, Brent is hovering just below $84/bbl amid a mixed API inventory report that showed a strong crude oil build and refined product draws. Today, investors will be eyeing the monthly IEA market report and weekly EIA inventory update. Today's data releases are likely to be more upbeat than the recent ones, which we think will push Brent toward this week's high of $84.6/bbl.> Gold touches one-month high as dollar retreats. Gold rallied from $1,760/oz to $1,790/oz yesterday as EUR/USD rose from 1.152 to 1.160. Gold is trading near $1,790/oz as we write. Today, the market awaits September PPI data and weekly jobless claims from the US. We expect bullion to retest support at $1,775/oz.> Base metals mixed; copper and zinc surge on supply worries. Base metals were mixed yesterday, with zinc rallying to its highest level in three years and copper, which is still in tight supply, following its lead. Inflationary strains stemming from the global power crisis have been largely responsible for the recent surge in prices.OIL PRICES HOLD STEADY AHEAD OF IEA MONTHLY AND EIA WEEKLY INVENTORY REPORTSDuring the first half of the day yesterday, front-month Brent was trending lower and was down as much as $1.3/bbl, hitting an intraday low of $82.2/bbl, as investors first digested what turned out to be a surprisingly downbeat monthly OPEC report. OPEC sounded a cautious note on the strength of oil demand, even after crude prices surged above $80/bbl for the first time in several years. It revised down its estimate for global oil consumption this year, highlighting that while the spike in natural gas prices could boost petroleum use in some areas, such as power generation, it could curb demand in other areas, such as refining. OPEC's estimate for global oil demand growth this year was cut to 5.8 mln bpd, down from 5.95 mln bpd previously. Although the change was due to lower consumption data in the first nine months of the year, total 4Q21 demand was revised up by 0.12 mln bpd to 99.82 mln bpd.During the US session, Brent started to recover toward $83.5/bbl, with attention switching to the EIA monthly oil market report, which was more upbeat than OPEC's earlier release. Owing to lower projected global oil supply - primarily from the US and Brazil - the EIA now expects global oil inventories in 4Q21 and 1Q22 to fall at a faster rate than it forecast last month. The agency also raised its expectations for global oil demand for this coming winter. It raised its 2021 stock draw forecast by 0.4 mln bpd from last month to 1.6 mln bpd, but its downward revision to the 2022 forecast for stock builds was more muted, at 0.1 mln bpd to 0.4 mln bpd, led by a revision to the 1Q22 figure. The agency slightly raised its US crude oil output estimate for 2022, which is now forecast at 11.73 mln bpd (up from 11.02 mln bpd in 2021), compared with 11.72 mln bpd projected in September. Brent eventually settled at $83.18/bbl, fixing $0.24/bbl below the previous settlement. This morning, Brent is hovering just below $84/bbl amid a mixed API inventory report that showed a strong crude oil build (+5.21 mln bbl) and refined product draws (gasoline down 4.58 mln bbl and distillates down 2.71 mln bbl). Today, investors are eyeing the monthly IEA market report and weekly EIA inventory update. The former will be released first and, in our view, is more likely to be in line with the EIA's monthly report than the downbeat OPEC outlook. Meanwhile, the EIA's weekly inventory update, which is being released a day later due to the US holiday on Monday, is unlikely to show such a strong crude oil build as the API showed, while refined product stock draws should be strong. Today's data releases are likely to be more upbeat than the ones recently released, which we think will push Brent toward this week's high of $84.6/ LD TOUCHES ONE-MONTH HIGH AS DOLLAR RETREATSGold rallied from $1,760/oz to $1,790/oz yesterday as the 10y US Treasury yield slid from 1.57% to 1.54%. Meanwhile, EUR/USD rose sharply from 1.152 to 1.160, creating tailwinds for bullion. Industrial production in the eurozone fell 1.6% m-o-m (versus an expected 1.7% decline) but rose 5.1% y-o-y (versus an expected 4.7% increase) in August. This slightly better than expected data supported bullion in the first half of yesterday's trading. In the US, investors were focused on the September CPI readings, which came in at 0.4% m-o-m (above the consensus of 0.3%) and 5.4% y-o-y (versus 5.3% expected). Immediately following the release, gold retreated from $1,775/oz to $1,760/oz amid growing expectations that the Fed would start tapering QE sooner rather than later. However, when US markets opened, bullion surged ahead to $1,795/oz, the highest in a month. The reason for this is likely that traders expected higher inflation readings than economists, and the relatively moderate 0.4% m-o-m increase in prices supported the view that the current inflationary pressure is transitory in nature. Later in the day, the September FOMC minutes were published. They showed that Fed officials mostly agreed that the bond-buying program should start being dialed back in mid-November or mid-December, with monthly reductions of $10 bln for Treasury purchases and $5 bln for MBS. Moreover, most of the committee believed that the inflation risks would only continue to grow, potentially leading to persistently elevated inflation. Gold took a small step back after the somewhat hawkish report came out and went on to end the day near $1,790/oz.During the Asian trading session today, gold stuck close to the $1,790/oz mark. Today, the market awaits September PPI data and weekly jobless claims from the US. The consensus for PPI is 0.6% m-o-m, but we think we could see a reading slightly higher than this given yesterday's CPI print from the US and this morning's September PPI data from China, which showed a 10.7% y-o-y increase in producer prices, the highest print in decades. US initial jobless claims are expected at 320k, down from 326k a week earlier. All in all, we think bullion will retest support at $1,775/oz SE METALS MIXED; COPPER AND ZINC SURGE ON SUPPLY WORRIESYesterday, base metals closed mixed. Three-month LME contracts on copper rose 2.88% (+$272/tonne from the previous close) to settle at $9,723/tonne, zinc surged 5.40% (+$175/tonne) to $3,422/tonne, aluminum edged down 0.38% (-$12/tonne) to $3,054/tonne and nickel was flat at $18,960/tonne.The surge in prices on certain metals yesterday started with zinc rallying to its highest level in more than three years after Nyrstar, which is majority-owned by the Trafigura trading group, announced that it would cut production at its three zinc smelters in Europe by up to 50% due to the surge in power prices and the costs associated with carbon emissions. Copper, which is still in tight supply and hence took its cue from zinc, also spiked yesterday, and LME prices are nearly touching the $10,000/tonne mark today, extending the rally. Where metals head from here will depend on how the energy crisis plays out.The surge in prices reflected inflationary strains across the globe, particularly in China, where factory-gate prices rose at the fastest pace in 26 years in September. The country's PPI came in above expectations this morning, climbing to 10.7% y-o-y last month, amid soaring prices on coal and other raw materials. Although there is no evidence yet that the increase in producer prices is to a significant extent being passed on to consumers (the CPI came in at only 0.7% m-o-m in September, while 0.9% growth had been expected), with coal futures at record levels and the Chinese government now allowing electricity prices to rise, the inflationary pressure might start filtering through to consumers later this