Commodities Daily - October 22, 2020

> Oil slides on US gasoline stock build reflecting weak demand. Today, the focus of oil investors is shifting to macro data, with weekly jobless claims and September existing home sales data due from the US and October consumer confidence due from the eurozone. The jobless claims data is likely to indicate a further slowdown in the US labor market recovery, thus supporting the dollar, which is currently seeing a safe-haven bid on reports of meddling in US elections and fading prospects for a US fiscal stimulus deal. Brent's correction to $41.5/bbl yesterday has the benchmark poised for a possible test of technical support at $40.5/bbl, though it would first need to break below its 200-day moving average of $41.3/bbl.> Gold pares yesterday's gains as dollar draws support. The $1,915/oz technical support level that we outlined yesterday is strong and we expect gold to stabilize around this level despite various headwinds, with a possible break below leading to the next support at $1,902/oz. We see the upside currently limited to $1,935/oz. The final US presidential debate before the November 3 election will be held overnight and is likely to generate headlines and thus gold price volatility, as foreign policy will be one of the key agenda items.OIL SLIDES ON US GASOLINE STOCK BUILD REFLECTING WEAK DEMANDYesterday, front-month Brent traded near $43/bbl early on, and then slid to $42.5/bbl ahead of the EIA's crude oil and refined product inventory update. The weekly report ended up showing a 1 mln bbl decrease in US crude oil stocks to 488.1 mln bbl last week, the data still distorted in the aftermath of Hurricane Delta. The drawdown came amid a further 0.6 mln bpd decrease in US crude oil production to 9.9 mln bpd, the lowest level since August, when Hurricane Laura hit the Gulf of Mexico. Another factor behind the drawdown was a 0.9 mln bpd increase in exports to 3.04 mln bpd as shipping and terminal activity normalized. A 0.17 mln bpd drop in imports to 5.12 mln bpd also contributed to the decline in crude stocks, with a 0.55 mln bpd decrease in refinery inputs to 13 mln bpd being insufficient to offset the draw. We note that some refiners have been easing off on the throttle due to still-subdued demand for products, which has recently become one of the biggest factors at play in the oil market.The EIA's refined product data was mixed, with gasoline stocks rising 1.9 mln bbl to 227 mln bbl and distillate stocks easing 3.83 mln bbl to 160.7 mln bbl. Inventories of distillates, which had been blamed for the stubbornly elevated product stockpiles, have now fallen for five consecutive weeks. Distillate demand (on a four-week-average basis) had been rebounding sharply this month but dropped last week. The counter-seasonal drop-off in demand is a bearish indicator for fuel-makers hoping for heating demand to pick up as the weather cools. We also note that the sector had been benefiting from increased fuel demand from the trucking industry. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) fell by 7.23 mln bbl. However, the data showed the biggest increase in gasoline stockpiles since May, and it was this data point that stole the show, as, along with falling refinery production, it underscored the lackluster level of demand with the pandemic raging. Following the EIA report, Brent plummeted to $41.45/bbl before eventually settling at $41.73/bbl, fixing $1.43/bbl below the previous settlement. Also weighing on oil prices late yesterday were dimming hopes that US lawmakers would be able to reach an agreement on an economic stimulus package after President Donald Trump accused the Democrats of holding up a deal.Today, the focus of oil investors is shifting to macro data, with weekly jobless claims and September existing home sales data due from the US and October consumer confidence due from the eurozone. The jobless claims data is likely to indicate a further slowdown in the US labor market recovery, thus supporting the dollar, which is currently seeing a safe-haven bid on reports of meddling in US elections and fading prospects for a US fiscal stimulus deal. Brent's correction to $41.5/bbl yesterday has the benchmark poised for a possible test of technical support at $40.5/bbl, though it would first need to break below its 200-day moving average of $41.3/bbl.GOLD PARES YESTERDAY'S GAINS AS DOLLAR DRAWS SUPPORTGold surged almost $25/oz to $1,930/oz yesterday morning on hopes of a new round of US stimulus, with EUR/USD climbing toward 1.19 after hovering above 1.17 at the start of this week. During US trading hours, bullion began to lose momentum and consolidated around the $1,925/oz mark. The Fed's latest Beige Book report indicated that the economy continued to recover from the coronavirus pandemic, though the picture was uneven, with the rebound showing signs of slowing in recent weeks as fiscal stimulus passed in early spring has expired and Covid-19 infection rates are climbing again. Recent economic data has been mixed, with consumer spending rising and jobs gains slowing. As we write, gold is attempting to hold on to the $1,915/oz mark amid dollar gains stemming from comments overnight by US Director of National Intelligence John Ratcliffe, who has accused Iran and Russia of electoral interference, claiming in particular that some voter registration information has been obtained by them and that Iran has been spreading disinformation. Meanwhile, following reports from House Speaker Nancy Pelosi's office that she and Treasury Secretary Steven Mnuchin were making further progress on a coronavirus stimulus package (with Senate Republicans continuing to raise objections), President Donald Trump accused the Democrats of being unwilling to craft a compromise.We expect gold to remain under pressure today given the souring backdrop and rebounding dollar amid the lack of positive developments in the US fiscal stimulus talks. Today's macro agenda includes weekly US initial jobless claims data, September existing home sales and eurozone October consumer confidence and could provide further headwinds for gold. The $1,915/oz technical support level that we outlined yesterday is strong and we expect gold to stabilize around this level despite various headwinds, with a possible break below leading to the next support at $1,902/oz. We see the upside currently limited to $1,935/oz. The final US presidential debate before the November 3 election will be held overnight and is likely to generate headlines and thus gold price volatility, as foreign policy will be one of the key agenda items.