Commodities Daily - October 21, 2021

> Oil prices rebound on upbeat EIA inventory report. This morning, Brent rallied to a new YTD high of $86.10/bbl and has since eased back toward $85.30/bbl as we write, with investors today eyeing the India Energy Forum (including the Saudi energy minister), as well as weekly US jobless claims and October eurozone consumer confidence. In our view, having failed to secure above $86/bbl this morning - having been driven lower by negative stock market momentum and a strengthening dollar - today Brent is likely to start consolidating within a $85.30-86.10/bbl range.> Gold higher on weaker dollar. Gold increased from $1,770/oz to $1,780/oz yesterday, while EUR/USD rose from 1.163 to 1.165. Gold is trading near $1,785/oz as we write. Today, the market awaits US existing home sales for September and weekly initial jobless claims data. We expect bullion to return to the $1,755-1,780/oz corridor today.> Metals mostly higher, aluminum slips as China seeks to rein in coal prices. Base metals were mostly higher yesterday, with nickel the key outperformer as concerns over supply are looming. Meanwhile, aluminum, the most energy-intensive of all base metals, moved against the pack as China takes measures to rein in coal prices.OIL PRICES REBOUND ON UPBEAT EIA INVENTORY REPORTYesterday, after sliding $1.20/bbl to $83.60/bbl, Brent rebounded toward $86/bbl on the back of a surprisingly upbeat weekly EIA inventory report. It eventually settled at $85.82/bbl, fixing $0.74/bbl above the previous settlement.US crude inventories saw a surprise draw of 0.431 mln bbl (the API had reported a 3.29 mln bbl weekly gain), driven by lower crude oil production (-0.1 mln bpd to 11.3 mln bpd), higher exports (+0.55 mln bpd to 3.06 mln bpd) and lower imports (-0.17 mln bpd to 5.83 mln bpd). We note that imports fell a total of 1.20 mln bpd in the first half of October. Meanwhile, inventories at Cushing drew 2.3 mln bbl to 31.2 mln bbl, the largest draw since February. We think these inventories are very likely to reach 30.3 mln bbl in November and decline to just below 30.0 mln bbl in December. US crude oil stocks are now sitting just above their 2018 low and well below their five-year average.Gasoline inventories also saw a surprise draw by a very strong 5.37 mln bbl to 217.70 mln bbl, the lowest level since November 2019. Stocks slid even with higher gasoline production at refineries (which are now undergoing seasonal maintenance and had produced more gasoline and less distillates last week) as demand on a four-week-rolling-average basis is the highest since 2007 for this time of year. The gasoline draw amid the strong demand means US drivers are very likely to continue facing historically high retail gasoline prices, which were $3.36 per gallon at the start of this week. A reduction in distillate production helps explain the 3.91 mln bbl draw in inventories to 125.40 mln bbl, the lowest level since April 2020. Farmers are pushing ahead with the harvest of the soybean and corn crops, and demand for heating is increasing as lower temperatures set in. Jet fuel, meanwhile, is still struggling with four-week-rolling-average demand at its lowest since 2014 (not including last year), but we could see a reversal in next week's EIA report as airport foot traffic is growing rapidly.This morning, Brent rallied to a new YTD high of $86.10/bbl but has since eased back toward $85.30/bbl as we write, with investors today eyeing the India Energy Forum (including the Saudi energy minister), as well as weekly US jobless claims and October eurozone consumer confidence. In our view, having failed to secure above $86/bbl this morning - driven lower by negative stock market momentum and a strengthening dollar -Brent is likely to start consolidating within a $85.30-86.10/bbl range today. We think that additional pressure could come from the comments from the Saudi energy minister at the India Energy Forum if he hints at the possibility of higher than planned OPEC+ production. At the forum yesterday, the Indian oil minister focused on the high crude prices, which he said were endangering economic growth as diesel demand in the country has already exceeded pre-pandemic levels and the high fuel prices are stoking inflation; in addition, by calling on OPEC+ to take into account the sentiment of oil-consuming nations he echoed the Japanese prime minister, who said on Monday that the recent increase in prices should encourage oil-producing countries to ramp up LD HIGHER ON WEAKER DOLLARGold increased from $1,770/oz to $1,780/oz yesterday, while EUR/USD rose from 1.163 to 1.165. The 10y US Treasury yield also increased from 1.64% to 1.66%, creating headwinds for bullion. There was little on the macro calendar yesterday. The final reading of the CPI for the eurozone came out with the same 0.5% m-o-m and 3.4% y-o-y as the first print. Early in the day gold was supported by lingering uncertainty around Evergrande Group. The latest headlines include a double-digit fall in the stock, a reported failure to sell a stake in a profitable subsidiary for cash and mixed remarks in the media about the likelihood of default. This buoyed the safe-haven appeal of gold among Asian investors. Later in the day, gold was supported by remarks from Cleveland Fed President Loretta Mester, who said that rate hikes won't come any time soon, as the US economy likely will not reach maximum employment and inflation above 2% for some time. However, Randal Quarles said he favored starting to taper QE after the next FOMC meeting in November and also mentioned that if the current high inflation figures remained in place next spring, the Fed may start raising interest rates earlier than expected. That limited the rise in gold, which ended the day near $1,780/oz.During Asian trading today, gold again rose to the $1,785/oz level. Today, the market awaits US existing home sales for September and weekly initial jobless claims. Additionally, we would highlight the US leading index for September, Philadelphia Fed manufacturing survey for October and eurozone preliminary consumer confidence for October. We expect bullion to return to the $1,755-1,780/oz corridor TALS MOSTLY HIGHER, ALUMINUM SLIPS AS CHINA SEEKS TO REIN IN COAL PRICESYesterday, base metals closed in the black, although aluminum was an exception. Three-month LME contracts on copper rose 0.35% (+$36 from the previous day's close) to $10,186/tonne, nickel surged 4.55% (+$913) to $20,963/tonne, zinc added 1.58% (+$56) to $3,564/tonne, while aluminum edged down 1.37% (-$42) to $3,070/tonne.Aluminum slipped against the pack yesterday following the Chinese authorities' announcement of measures to tame coal prices and fight the power crisis. With circa 34% of costs attributable to power, aluminum is the most energy-intensive of all base metals. Investors are currently focused on the cost-inflation impact on metals of higher power prices, which is jeopardizing supply. Yet, while the supply impact is likely to support commodity prices in the nearest months, more long term, power rationing might hit demand as well. With weaker output in China's property and construction sectors and a further economic slowdown expected, lower demand for metals will put a lid on the rally in prices.While aluminum moved against the general trend yesterday, nickel turned out to be an outperformer, surging to seven-year high amid supply concerns. Vale S.A. cut its output guidance for 2021 due to a strike at one of its mines, while Nornickel reported lower than expected output for 3Q21. The surge was also fueled by Indonesian political export noise and unfavorable weather in the Philippines, as well as lower Chinese output of pig iron in