Commodities Daily - October 27, 2020

> Oil prices remain under pressure, with new Gulf of Mexico storm front providing some support. US September durable goods orders and October consumer confidence are among the key macro releases today. In our view, both are likely to be downbeat. Oil prices are currently recovering from yesterday's setback amid a weakening dollar, though we do not see Brent moving any higher than $41/bbl today. Moreover, we believe there is a high likelihood of a retest of yesterday's low of $40.22/bbl later in the day. Mild short-term support could come from Hurricane Zeta, which has already shut down 16% of US Gulf of Mexico oil output.> Gold holds around $1,900/oz mark despite yesterday's stock market selloff. Today, investors will be eyeing US housing prices, September durable goods orders and October consumer confidence. We think gold will continue to trade close to $1,900/oz throughout the day today, with the upside limited to the $1,912/oz resistance level, as today's US data is most likely to come out downbeat, weighing on US inflation expectations; on the other hand, investors should keep buying gold on price dips, so the downside should be limited to the $1,887/oz support level, in our view.OIL PRICES REMAIN UNDER PRESSURE, WITH NEW GULF OF MEXICO STORM FRONT PROVIDING SOME SUPPORTAfter hovering above $41/bbl early yesterday, front-month Brent began to slide toward $40.5/bbl and then fell to as low as $40.2/bbl during US trading. It eventually settled at $40.46/bbl, fixing $1.31/bbl below the previous settlement. Oil prices continued to face various headwinds, including the ongoing Libyan supply recovery. Yesterday, the force majeure on exports from El Feel, one of the county's main oil fields, was lifted. This came after a rebound in Libyan crude output to 0.69 mln bpd from less than 0.1 mln bpd in early September. National Oil Corporation said on Friday that Libyan production would reach 1 mln bpd in the coming weeks, a quicker ramp-up than many had been predicting. This, along with the slow demand recovery, has many believing that OPEC+ will hold off on the planned 2 mln bpd production increase at the start of next year. Demand in Asia (particularly in China and India) is currently much stronger than in the West (particularly in Europe), a disparity that has clouded the outlook for global demand. We believe that this factor, together with the return of Libyan production, is likely to squeeze Brent calendar spreads or at least prevent them from recovering. Brent's three-month time spread has remained around $1/bbl in contango since mid-October versus $1.5/bbl in late September and early October, pointing to persisting oversupply concerns. Yesterday, investors were looking for hints from the Saudi energy minister (who, along with OPEC's secretary general, spoke at the CERAWeek forum) that the current 7.7 mln bpd in production cuts would be maintained for at least some of 2021. When asked to comment on the oil market recovery, he said, "I guess the worst part is over." This did not chime with an earlier remark from the OPEC secretary general, who said that any recovery may take longer than is hoped for, as coronavirus infection rates are rising around the world. The lack of positive signals from OPEC provided mild headwinds for oil prices, not long after Russian President Vladimir Putin declined to rule out an extension of the current cuts if needed.Today, oil investors will continue to follow the CERAWeek forum, with today's speakers including the ONGC chairman, the CEO of Baker Hughes and Saudi Aramco's technology strategy and planning director. US September durable goods orders and October consumer confidence are among the key macro releases today. In our view, both are likely to be downbeat. Moreover, we believe there is a high likelihood of a retest of yesterday's low of $40.22/bbl later in the day. Mild short-term support could come from Hurricane Zeta, which has already shut down 16% of US Gulf of Mexico output (around 0.3 mln bpd). According to the US National Hurricane Center, the storm could hit the northern Gulf Coast at or near hurricane strength tomorrow. We note that US oil and gas producers have now withdrawn workers and halted output in the Gulf of Mexico at least six times this year as storms approached.GOLD HOLDS AROUND $1,900/OZ MARK DESPITE YESTERDAY'S STOCK MARKET SELLOFFAfter trading in a range of $1,895-1,900/oz at the start of the day yesterday, gold pushed higher around midday and began to consolidate in a $1,900-1,910/oz range, where it remains as we write this morning. Yesterday saw negative stock market momentum globally following slight losses for Asian indexes, after which the declines accelerated throughout the day. The MSCI Europe fell 2.0% and the S&P 500 1.9%. Pressure came from a perceived lack of progress in the US stimulus negotiations, which nonetheless continued yesterday evening - from what is being reported, it appears there remains a difference in opinions that is unlikely to be bridged before election day, now a week away. With few other catalysts in play, like was the case yesterday, the stimulus story has been driving US and global indexes. Another downbeat factor, meanwhile, was record Covid-19 case numbers in the US and Europe, which has prompted a tightening of quarantine measures in some European countries. We think gold prices are unlikely to see high volatility ahead of the US elections. We think the seemingly increasing likelihood of a Biden victory means that another round of vast fiscal stimulus is only a matter of time, which would be bullish for gold. Thus, we would expect to continue to see demand for gold on price dips below $1,900/oz. This morning, September Chinese industrial profits came in weaker than the previous month, while 3Q20 South Korean GDP ticked up Q-o-Q. For the rest of the day, investors will be eyeing US housing prices, September durable goods orders and October consumer confidence. We think gold will continue to trade close to $1,900/oz throughout the day today, with the upside limited to the $1,912/oz resistance level, as today's US data is most likely to come out downbeat, weighing on US inflation expectations; on the other hand, investors should keep buying gold on price dips, so the downside should be limited to the $1,887/oz support level, in our view.