Commodities Daily - October 15, 2020

> Oil prices rise ahead of EIA inventory report amid stock market headwinds. We believe that the risks for oil prices are slightly skewed to the upside today in light of what is expected to be an upbeat EIA report. Today is also the last day of the Energy Intelligence Forum. Speakers include the OPEC secretary general and CEOs of Vitol, Gunvor and Trafigura. We expect Brent to break above $43.6/bbl resistance today, which could lead to a gain into the $43.8-44.2/bbl range. However, if Brent breaks below $43.1/bbl, then the downside target of $42.6/bbl would come into sight. > Gold stabilizes around $1,900/oz as US stimulus hopes fade yet again. Data-wise, investors will be focused on US jobless claims. Also on the agenda, the two top candidates for the US presidency are expected to address the public separately tonight on television, after their campaigns and the regulator failed to agree on terms for the debate originally scheduled for tonight. The ongoing correction in the stock market has created headwinds for gold, which could test support at $1,877/oz if global risk-off trading intensifies, with a break below this level possibly causing a drop into the $1,848-1,866/oz range. The next resistance level is $1,911/oz, which could be broken if the US jobless claims data provides a strong surprise to the upside. A break above could open the path to $1,925/oz.OIL PRICES RISE AHEAD OF EIA INVENTORY REPORT AMID STOCK MARKET HEADWINDSYesterday, ahead of the IEA monthly report, front-month Brent was trading near $41.75/bbl. The IEA unexpectedly raised its 2021 global demand estimate by 0.05 mln bpd to 97.2 mln bpd next year. This comes after both OPEC and the EIA recently lowered their demand estimates for next year. However, the IEA's demand estimate for this year was left almost unchanged: it sees demand averaging 91.71 mln bpd. On the bearish side, there was an upward revision to non-OPEC supply for this year and next. Meanwhile, the estimate for 2020 demand for OPEC crude was cut by a small 0.06 mln bpd versus the previous estimate, while the one for next year was left unchanged. The IEA also stated that the efforts of producers have shown some success, noting a strong draw on storage, with implied OECD stocks falling by 2.3 mln bpd on average in 3Q20. The IEA expects them to fall by 4.1 mln bpd in 4Q20. Following the release, Brent began to climb toward $43.5/bbl, at the time additionally supported by rising S&P 500 futures and a weakening dollar. Later in the day equities whipsawed on pandemic worries, but oil stayed higher, buoyed by expectations of an easing supply glut following the IEA report. Note, however, that Russian Energy Minister Alexander Novak yesterday highlighted that leading oil producers will start easing output curbs as planned in January despite the spike in coronavirus cases. Brent eventually settled at $43.32/bbl, fixing $0.87/bbl above the previous settlement.Overnight, the API reported that US crude stocks fell 5.4 mln bbl last week to 490 mln bbl (the previous estimate was 492.9 mln bbl). The drawdown came despite a 0.02 mln bpd rise in imports and a 0.6 mln bpd decrease in refinery runs. Crude stocks at Cushing rose 2.2 mln bbl. The refined product data was upbeat as well, showing a 1.5 mln bbl draw in gasoline stocks and a 3.9 mln bbl decrease in distillate stocks. The EIA inventory report is due today at 18:00 Moscow time. The Bloomberg consensus is for a 2.1 mln bbl crude stock draw, a 1.3 mln bbl decrease in gasoline stocks and a 1.7 mln bbl draw in distillate stocks. We expect the EIA data to show a 2-3 mln bbl decrease in US crude inventories on lower production as Hurricane Delta forced widespread platform closures in the Gulf of Mexico in the reporting week. Further support is likely to come from upbeat refined products data as the API's release strongly suggests. Overall, we believe that the risks for oil prices are slightly skewed to the upside today in light of what is expected to be an upbeat EIA report. However, the ongoing stock market correction is providing strong headwinds and is likely to prevent Brent from taking advantage of upbeat fundamentals to post stronger gains. Today is also the last day of the Energy Intelligence Forum. Speakers include the OPEC secretary general and CEOs of Vitol, Gunvor and Trafigura. We expect Brent to break above $43.6/bbl resistance today, which could lead to a gain into the $43.8-44.2/bbl range. However, if it breaks below $43.1/bbl, then the downside target of $42.6/bbl would come into sight.GOLD STABILIZES AROUND $1,900/OZ AS US STIMULUS HOPES FADE YET AGAINAfter trading around $1,890/oz at the start of the day yesterday, gold prices began to generate positive momentum, rising toward $1,910/oz as the dollar began to weaken. However, this momentum was overturned by remarks from US Treasury Secretary Steven Mnuchin, who said that "executing" fresh fiscal stimulus before the November 3 election would now be "difficult." We note that Mnuchin has often been more publicly positive on stimulus prospects than other top US negotiators. The inability of US lawmakers to reach an agreement after months of negotiations has led to rising tensions both between and within the two main political parties, making it seem less and less likely that they will be able to come up with a compromise fiscal stimulus bill to take to the public. This does not bode well for gold prices, which would see support if a stimulus package were to be passed. All in all, it is starting to look like gold could remain stuck in a holding pattern before the US presidential election. Today, investors will keep an eye on the two-day EU leaders' summit, which is seen as the latest soft deadline in trade negotiations between the EU and the UK. Data-wise, investors will be focused on US jobless claims. Many Americans have run through their jobless benefits, as it has now been 29 weeks since the initial pandemic-induced spike in applications for these benefits. In our view, a decrease in jobless claims is likely. We note that the Pandemic Emergency Unemployment Compensation program provides an additional 13 weeks of benefits but is set to expire at the end of December. The two top candidates for the US presidency are expected to address the public separately tonight on television, after their campaigns and the regulator failed to agree on terms for the debate originally scheduled for tonight. Their remarks may affect tomorrow morning's global market outlook. Meanwhile, the ongoing correction in the stock market has created headwinds for gold, which could test support at $1,877/oz today if global risk-off trading intensifies, with a break below this level possibly causing a drop into the $1,848-1,866/oz range. The next resistance level is $1,911/oz, which could be broken if the US jobless claims data provides a strong surprise to the upside. A break above could open the path to $1,925/oz.