Commodities Daily - October 20, 2020

> Oil prices slide alongside stocks following OPEC+ JMMC meeting. Today, investors will eye US September building permits and housing starts data, and then overnight they will take in API's weekly assessment of US oil and refined product inventories. We also note that risk appetite could receive a strong boost today if Republicans and Democrats manage to work out their differences on the US stimulus package. The weekly API report is likely to show inventory draws across all categories (at least judging by the latest consensus estimates), which could spur a rebound in oil prices. In our view, given the current stock market headwinds and the negative momentum in Brent, which recently broke below support at $42.5/bbl, we think the oil benchmark is now very likely to consolidate within a $41.5-42.1/bbl range.> Gold continues to hover above $1,900/oz as investors eye major US stimulus talks progress. Yesterday, a spokesperson for US House Speaker Nancy Pelosi told reporters that gaps are narrowing among key negotiators' positions on a next stimulus package. Pelosi has set today as the deadline for reaching an agreement. If the sides manage to work out their differences, risk assets will likely find support and gold could rally beyond resistance at $1,910/oz and head toward $1,925/oz.OIL PRICES SLIDE ALONGSIDE STOCKS FOLLOWING OPEC+ JMMC MEETINGYesterday, all eyes were on the OPEC+ JMMC video conference. For most of the day, Brent traded sideways within a $42.6-43.2/bbl range, holding above the $42.5-42.6/bbl technical support range that we mentioned yesterday. OPEC+ is currently curbing oil production by 7.7 mln bpd, down from the cuts totaling 9.7 mln bpd for three months that started in May, and under the current plan (made when the oil demand prospects for 2021 were brighter) is due to ease the cuts by a further 2 mln bpd in January. The first thing worth highlighting is that yesterday the oil ministers acknowledged the prevailing demand-side risks. For example, Russian Energy Minister Alexander Novak highlighted that the demand recovery had slowed because of the second coronavirus wave but had not yet fully reversed, while the Saudi minister noted, again referring to the recovery in demand, that "we know for certain it's uncertain." After the Saudi energy minister said "we have to be able to take measures to head off negative trends and developments - to nip them in the bud," oil bulls braced for a recommendation for OPEC+ to taper its output cuts next year. However, according to Reuters, citing four sources in OPEC+, the panel did not make a formal recommendation to change the policy for 2021 ahead of the next full OPEC meeting on November 30-December 1. Bloomberg also highlighted that the panel did not discuss whether OPEC+ should press on with its plans to taper output cuts next year. Later in the day, Novak said that the JMMC had recommended sticking to the current deal as it is, though he pointed out that the next ministerial meeting of OPEC+ is coming up in December. As we noted yesterday, oil traders are now questioning whether the market will be able to absorb the planned production increase of nearly 2 mln bpd from OPEC+ in January, which could result in a global inventory buildup amid a tepid oil demand recovery. The fact that the JMMC steered clear of signaling that it would reconsider the planned production increase next year has weighed on sentiment. Front-month Brent eventually settled at $42.62/bbl yesterday, fixing $0.31/bbl below the previous settlement. As we also noted yesterday, we think it is too early for OPEC+ to make a strong recommendation to alter supply (we think the group will eventually be ready to do so if needed), as there are various important factors that need to be monitored before the full OPEC+ meeting, including the November 3 US presidential election (which could reshape the outlook for US foreign and energy policy, including the sanctions on Iranian oil), the pace of Libya's oil production recovery and the trajectory of the pandemic (and the potential for a vaccine or treatment).Today, investors will eye US September building permits and housing starts data, and then overnight API's weekly assessment of US oil and refined product inventories. The data on building permits and housing starts could slightly disappoint given the impact wildfires have had on western US states. We believe both releases are likely to show only a modest m-o-m increase, which could provide headwinds for risk assets. We note, however, that risk appetite could receive a strong boost today if Republicans and Democrats manage to work out their differences on the new US stimulus package. The weekly API report is likely to show draws across all categories (judging by the consensus estimates), which could spur a rebound in oil prices. In our view, given the current stock market headwinds and the negative momentum in Brent, which recently broke below support at $42.5/bbl, we think the oil benchmark is now very likely to consolidate within a $41.5-42.1/bbl range.GOLD CONTINUES TO HOVER ABOVE $1,900/OZ AS INVESTORS EYE MAJOR US STIMULUS TALKS PROGRESSGold rose $20/oz yesterday morning to $1,920/oz supported by a weaker dollar, with EUR/USD rallying from 1.17 at the start of the session and falling just short of the 1.18 mark. This came on the back of renewed hopes of a further round of fiscal stimulus in the US after House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin indicated that they are moving toward a compromise. However, gold slid back to $1,900/oz later amid a stock market correction, with Covid lockdown fears taking center stage. A sustained rise in infections in Ireland has led the government to introduce strict quarantine measures. Should larger European economies follow suit, this could weigh heavily on markets, which makes the US fiscal support vital. Should a stimulus bill not be passed before the US elections, we could see a strong wave of risk-off trading across global markets, which would also likely weigh on gold, possibly even pressuring it down toward $1,800/oz.However, we do not consider this to be the most likely scenario, and market sentiment is cautiously optimistic this morning as investors await further news on the US fiscal stimulus talks. A spokesperson for US House Speaker Nancy Pelosi told reporters that gaps are narrowing among key negotiators' positions on a next stimulus package. Pelosi has set today as the deadline for reaching an agreement. If the sides manage to work out their differences, risk assets will likely find support and gold could rally beyond resistance at $1,910/oz and head toward $1,925/oz. Investors will also be looking out for US housing starts and building permits today in terms of macro releases.