Commodities Daily - October 25, 2021

> Oil rises to new YTD highs as OPEC+ justifies cautious supply strategy amid demand risks. Today's global agenda is rather empty, and we think that Brent could start to gradually push toward $87/bbl on persisting market tightness. Oil investors will be watching out for the IEA press briefing on global efforts to cut methane emissions, the Urals loading program for November and the start of the Singapore Energy Summit, at which many prominent speakers are participating. > Gold advances amid decline in US 10y Treasury yield. Gold is trading near $1,795/oz as we write. Today, the market awaits Chicago Fed national activity index for September and the Dallas Fed manufacturing business index for October. We expect bullion to remain in a $1,775-1,805/oz range today.> Metals mostly in the red, with investors partially refocusing on demand-side risks. Base metals were mostly lower at the end of last week, as investors somewhat shifted their attention to the demand-side issues. Still, some markets remain very tight, supporting currently high quotes.OIL RISES TO NEW YTD HIGHS AS OPEC+ JUSTIFIES CAUTIOUS SUPPLY STRATEGY AMID DEMAND RISKSOn Friday, front-month Brent rebounded from $83.8/bbl at the start of the day and rallied to $85.9/bbl as downbeat eurozone preliminary October PMI data was followed by an upbeat US PMI print. European businesses are reporting a sharp slowdown in activity caused by a deteriorating global supply squeeze that's also producing record inflation. It is becoming increasingly apparent that after strong expansions in 2Q21 and 3Q21, GDP growth is looking much weaker by comparison in 4Q21. Meanwhile, in the US, October business activity among service providers expanded the most in three months, while manufacturing growth cooled on lingering supply and labor constraints, which are also fueling even greater inflationary pressures across the economy. Brent eventually settled at $85.53/bbl on the day, $0.92/bbl above the previous settlement.As we noted last week, political pressure on OPEC+ is building, with major crude oil-importing countries including Japan, India and the US pointing to the need for extra OPEC+ supply. The group still has more than 4 mln bpd of production cuts to unwind under the current deal. Despite this, over the weekend, Saudi Arabia's energy minister vowed caution on OPEC+ supply because the coronavirus pandemic could still hit demand. Such a conservative stance was also recently echoed by both Nigeria and Azerbaijan. This has resulted in Brent hitting a new YTD high of $86.43/bbl this morning. OPEC+ is to meet on November 4 to decide whether to stick with its strategy in December.Today's global agenda is rather empty. We think that Brent could start to gradually pushing toward $87/bbl on persisting market tightness. Oil investors will be watching out for the IEA press briefing on global efforts to cut methane emissions, the Urals loading program for November and the start of the Singapore Energy Summit, at which many prominent speakers are participating. Meanwhile, European gas prices wavered last week, but there's plenty of talk of fresh spikes as winter deepens. There are also signs that the EU is less than united on how to prepare for that. Ahead of an emergency meeting of energy ministers today, the bloc looks split on how to ease the pain for industries and consumers. Also this week, the world's oil and gas giants, including Royal Dutch Shell, TotalEnergies, Exxon and Chevron, are poised for another strong set of earnings in 3Q21 (according to Bloomberg, supermajors could produce nearly $30 bln of free cash flow, the most since 2008). We think this week Brent is most likely to overcome the $87/bbl barrier amid what should be upbeat weekly US inventory data mid-week. After that, US 3Q21 GDP due on Thursday will determine further price LD ADVANCES AMID DECLINE IN US 10Y TREASURY YIELD Gold firmed from $1,780/oz to $1,790/oz on Friday, while the 10y US Treasury yield retreated from 1.70% to 1.64% and EUR/USD strengthened from 1.162 to 1.164. Friday's data - IHS Markit's PMIs for DMs in October - was mixed for gold. The US manufacturing PMI slid to 59.2 (versus the 60.5 consensus) from 60.7 in September, while the services PMI beat expectations at 58.2 (versus the 55.2 consensus), up from 54.9 the previous month. The employment index rose to 54.3 from 50.3 in September - the highest reading since June. The eurozone saw the reverse picture, with the manufacturing PMI reaching 58.5 (versus the 57.1 consensus), down from 58.6 in September, and the services PMI sliding to 54.7 (55.4 consensus) from 56.4 the previous month. On balance, the mixed results provided some support for bullion, which touched a six-week high of $1,810/oz at one point. However, the positive momentum was wiped out by hawkish comments from Fed Chair Jerome Powell, who said the regulator will begin tapering its bond-buying program shortly but will remain calm about raising interest rates. Powell also said inflation should come down as supply-chain issues ease. Gold eventually ended the day near $1,790/oz. On Sunday, US Treasury Secretary Janet Yellen said she expects inflation to remain high through 1H22 and ease in 2H22 but stressed that it was under control.Gold is trading at $1,795/oz as we write. Today, the market awaits the Chicago Fed national activity index for September and the Dallas Fed manufacturing business index for October. Later this week, US and eurozone GDP for 3Q21 are due on Thursday and Friday, respectively; US PCE inflation for September will be out on Friday, and the ECB rate decision and press conference will come on Thursday. The US will also see new home sales and pending home sales for September, the housing price index for August, the conference board consumer confidence index, the Richmond Fed manufacturing index for October, durable goods orders and wholesale inventories for September, Chicago PMI and Kansas Fed manufacturing activity index for October, personal income and spending for September and weekly initial jobless claims. The eurozone will see preliminary CPI data for October and consumer and business confidence for October. We expect bullion to remain in a $1,775-1,805/oz range TALS MOSTLY IN THE RED, WITH INVESTORS PARTIALLY REFOCUSING ON DEMAND-SIDE RISKSOn Friday, base metals closed mixed. The three-month LME contract on copper declined 1.30% (-$128 from the previous day's close) to $9,704/tonne, aluminum corrected 1.46% (-$43) to $2,868/tonne, nickel edged down 0.96% (-$191) to $19,739/tonne, while zinc added 0.52% (+$18) to $3,448/tonne.Most base metals ended last week in the red, erasing earlier gains that were fueled by the energy crisis and potential production cuts in smelting and refining. A plunge in coal quotes due to Chinese interventions in an effort to rein in the market continued, with thermal coal prices on the Zhengzhou Commodity Exchange dropping another 11% to $221/tonne on Friday, squeezing the speculative premium in base metal prices. With the energy rally tamed for now, investors seem to be somewhat shifting their focus to the risks on the demand side. Given the market's mild response to Evergrande's narrow escape from default this time, there is evidence investors are preoccupied with China's slowing economic growth, which is weighing on raw materials.While the demand issue is pressuring metals, there are fundamentals that seem supportive to the quotes. Copper inventories continue to slide week after week, with stocks in Shanghai dropping below 40 kt last week. Suppliers such as copper mining giant Freeport-MacMoRan are reportedly producing less metal than the market expected, as 3Q21 earnings data shows. At the same time, China's Jiagnxi province, the country's major producer of refined copper, has started power rationing to high-energy consuming sectors, including copper production, according to Mysteel. With that in mind, copper quotes are likely to remain elevated before dropping back again on presumably less tight fundamentals in