Commodities Daily - October 16, 2020

> Oil prices pare back losses on upbeat EIA inventory report ahead of key US data releases today. Today, oil investors will primarily eye US September retail sales and industrial production, University of Michigan consumer sentiment for October and the Baker Hughes rig count. We think the US data is likely to generally come out upbeat, thus supporting risk appetite. For the US rig count, we think yet another slight weekly gain is likely, which would entail mild headwinds to prices later in the day. We expect Brent to rise today toward technical resistance at $43.4/bbl, although we do not think that there will be sufficient momentum for it to consolidate within the $43.8-44.2/bbl technical range that we outlined yesterday.> Gold keeps trading around $1,900/oz amid dollar headwinds. We think today's US retail sales data for September may come in on the stronger side, as this year the pandemic disrupted the usual seasonal patterns, pushing sales growth into negative territory in August. As a result, the decline in September may not be as sharp either as usual or as expected. Meanwhile, following the rather positive ISM manufacturing PMI data, today's US industrial production data may show a further uptick in growth in September, with solid gains in both the vehicle and ex-vehicle components. In light of the above, gold could well move above the $1,910/oz resistance level that it failed to break this morning, which could lead to further gains, though we would not expect a move beyond $1,925/oz.OIL PRICES PARE BACK LOSSES ON UPBEAT EIA INVENTORY REPORT AHEAD OF KEY US DATA RELEASES TODAYYesterday, having traded near the $43.4/bbl mark early on, front-month Brent plummeted to $41.6/bbl amid strong momentum in the dollar and stock market indexes that were trending lower. Key for these moves were signs that the US labor market recovery is losing steam. Meanwhile, new restrictions in Europe amid a surge in Covid-19 infections are dimming the outlook for economic growth and fuel demand. Furthermore, at the final day of Energy Intelligence Forum yesterday, top global oil traders including Vitol, Trafigura and Gunvor expressed concerns over the slow oil demand recovery because of the resurgent pandemic. Trafigura's CEO sees Brent falling below $40/bbl in the short term but expects it to hit $52/bbl next year, while Vitol sees it at $55/bbl. The view that demand was recovering more slowly than expected was shared by OPEC's Secretary General, although on a positive note he highlighted that, when OPEC+ meets at the end of November, it will work to ensure the market continues to recover in 2021. Meanwhile, the Joint Technical Committee (JTC) met via videoconference yesterday to discuss the major downside risks to oil prices (the return of Libyan supply and rising coronavirus cases that threaten the oil demand recovery) ahead of Monday's monthly Joint Ministerial Meeting (JMMC).Brent pared back some losses ahead of the EIA report, reaching around $42.2/bbl, as stock markets began to recover. The report ended up showing a 3.82 mln bbl decrease in US crude oil stocks to 489.1 mln bbl last week. This came amid a 0.44 mln bpd decline in imports to 5.28 mln bpd and a 0.5 mln bpd decrease in output to 10.5 mln bpd. A 0.52 mln bpd decrease in exports to 2.13 mln bpd and a 0.27 mln bpd drop in refinery inputs to 13.57 mln bpd were insufficient to offset the overall draw. The refined product data was upbeat, with gasoline stocks falling 1.62 mln bbl to 225.1 mln bbl and distillate stocks easing a very strong 7.24 mln bbl to 164.5 mln bbl. Overall, total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) fell a very strong 16.8 mln bbl. We highlight that US gasoline demand is creeping back toward 2019 levels but the progress is slow. Demand for distillates picked up last week, with the four-week average estimate now just slightly below the five-year average. Following the EIA report, Brent went on to rise toward $43.5/bbl and eventually settled at $43.16/bbl, fixing $0.16/bbl below the previous settlement.Today, oil investors will primarily eye US September retail sales and industrial production, University of Michigan consumer sentiment for October and the Baker Hughes rig count. We think the US data is likely to generally come out upbeat, thus supporting risk appetite. For the US rig count, we think yet another slight weekly gain is likely, which would entail mild headwinds to prices later in the day. We expect Brent to rise today toward technical resistance at $43.4/bbl, although we do not think that there will be sufficient momentum for it to consolidate within the $43.8-44.2/bbl technical range that we outlined yesterday.GOLD KEEPS TRADING AROUND $1,900/OZ AMID DOLLAR HEADWINDSAfter trading around $1,900/oz at the start of the day yesterday, gold dipped to $1,890/oz, but later in the day it began to generate positive momentum, rising toward $1,910/oz, where it remains as we write. Dimming hopes that the US will launch more fiscal stimulus within the coming weeks have been a factor suppressing gold prices and boosting the dollar, while fears of new Covid-19 lockdowns around the globe (especially in Europe) and disappointingly weak US jobless claims data have also weighed on gold. Initial jobless claims rose by more than expected last week and were the highest in two months, which benefited the dollar via safe-haven demand. This is because the data only added to growing concerns that the pandemic is causing lasting damage to the US labor market, with around 25 mln Americans remaining on jobless benefits.News late yesterday that US President Donald Trump would push his party's senators to make a compromise on a stimulus plan has provided gold with some support this morning, as it has revived the prospects of a stimulus deal before the November 3 election. On the more negative side have been remarks from the president that new anti-China measures would fund US stimulus, though no details were provided. Today, the European Council meeting continues, with the key questions being whether any progress comes in Brexit talks and whether the UK withdraws from negotiations. Investors will also eye eurozone CPI as well as US releases including retail sales, industrial production and Michigan consumer sentiment. Chinese GDP, industrial production and retail sales are all due early Monday. We think today's US retail sales data for September may come in on the stronger side, as this year the pandemic disrupted the usual seasonal patterns, pushing sales growth into negative territory in August. As a result, the decline in September may not be as sharp either as usual or as expected. Meanwhile, following the rather positive ISM manufacturing PMI data, today's US industrial production data may show a further uptick in growth in September, with solid gains in both the vehicle and ex-vehicle components. In light of the above, gold could well move above the $1,910/oz resistance level that it failed to break this morning, which could lead to further gains, though we would not expect a move beyond $1,925/oz.