Commodities Daily - October 28, 2020

> Oil prices stabilize ahead of today's EIA inventory report, which is likely to generate headwinds. We expect the EIA data to show a strong 6-7 mln bbl increase in US crude inventories amid subdued refining runs, higher imports and lower exports, against the backdrop of an almost full production recovery after Hurricane Delta as platforms restarted operations following closures in the Gulf of Mexico in the reporting week. Further pressure on oil prices today could come from downbeat refined product data, as strongly suggested by the API release. We think Brent may retest support at $40.2/bbl today, with a break below likely causing a fall to $39.8/bbl.> Gold continues to hover above $1,900/oz and is unlikely to move much this week. Today there are no major economic data releases, with a Bank of Canada rate decision being the major event. The bank is unlikely to alter the pace of asset purchases or its interest rate guidance. Given gold's multiple failures to break above resistance at $1,912/oz both yesterday and this morning, we expect it to move below $1,900/oz today, especially in light of recent dollar strength. It may well even test support at $1,887/oz, though we think investors are likely to keep buying on dips, so any sub-$1,900/oz levels are unlikely to hold for long.OIL PRICES STABILIZE AHEAD OF TODAY'S EIA INVENTORY REPORT, WHICH IS LIKELY TO GENERATE HEADWINDSAfter trading at $40.5/bbl early on yesterday, front-month Brent began to gain momentum and peaked at $41.5/bbl during the US trading session. It eventually settled at $41.2/bbl, fixing $0.74/bbl above the previous settlement. Supply disruptions caused by tropical storm Zeta, which has moved into the Gulf of Mexico and is expected to make landfall around Louisiana next Wednesday, were the major driver. According to the US Bureau of Safety and Environmental Enforcement, 0.914 mln bpd of oil production has been shut. (For some oil producers, this was the sixth time pulling staff since June.) Note that these disruptions will show up in the weekly inventory data only next week. Atlantic hurricane season is expected to last through November, but could potentially extend into December this year, according to meteorologists cited by Bloomberg.Another factor supporting oil prices yesterday was the reported 1.9% m-o-m uptick in US durable goods orders in September, delivering a convincing beat on consensus expectations and indicating that manufacturers continue to recover from the recession, with orders picking up for metals, motor vehicles and electronic goods. Meanwhile, US consumer confidence was reported to have taken a hit in October, which is thought to reflect rising coronavirus cases and the lack of another round of economic stimulus clouding the forecast for the months ahead.Overnight, the API reported a 4.6 mln bbl rise in US crude stocks last week to 495.2 mln bbl. The build came amid a 0.44 mln bpd rise in imports and despite a 0.176 mln bpd increase in refinery runs. Crude stocks at Cushing rose 0.136 mln bbl. The refined product data was also bearish, showing a 2.6 mln bbl increase in gasoline stocks and a 5.3 mln bbl increase in distillate stocks. The downbeat release pressured Brent back to $40.5/bbl, where it trades as we write. The EIA inventory report is due today at 17:30 Moscow time. The Bloomberg consensus is for a 1.5 mln bbl crude stock build, no change for gasoline stocks and a 1.76 mln bbl draw in distillate stocks. We expect the EIA data to show a strong 6-7 mln bbl increase in US crude inventories amid subdued refining runs, higher imports and lower exports, against the backdrop of an almost full production recovery after Hurricane Delta as platforms restarted operations following closures in the Gulf of Mexico in the reporting week. Further pressure on oil prices today could come from downbeat refined product data, as strongly suggested by the API release. Meanwhile, GasBuddy data indicates that US gasoline demand fell 0.5% in the week ending on October 24, marking a third straight weekly decline. We think Brent may retest support at $40.2/bbl today, with a break below likely causing a fall to $39.8/bbl.GOLD CONTINUES TO HOVER ABOVE $1,900/OZ AND IS UNLIKELY TO MOVE MUCH THIS WEEKGold traded sideways yesterday within a $1,900-1,910/oz range and this morning stuck to a tighter $1,905-1,910/oz corridor despite a strong dollar late in yesterday's US trading session (when EUR/USD slid from 1.184 to 1.177). Global headlines again focused on worsening Covid-19 numbers and the slim hope of a new US fiscal stimulus in the coming weeks. Markets were disappointed after US President Donald Trump acknowledged that a coronavirus economic relief deal would now likely come after the November 3 election. Trump and House of Representatives Speaker Nancy Pelosi then went on to trade blame for the impasse. Some headlines also cited uncertainty about the outcome to the US election after financial media had grown more confident of a Biden victory in recent weeks. Today there are no major economic data releases, with a Bank of Canada rate decision being the major event. The bank is unlikely to alter the pace of asset purchases or its interest rate guidance. Given gold's multiple failures to break above resistance at $1,912/oz both yesterday and this morning, we expect it to move below $1,900/oz today, especially in light of recent dollar strength. It may well even test support at $1,887/oz, though we think investors are likely to keep buying on dips, so any sub-$1,900/oz levels are unlikely to hold for long. The rising likelihood of a Biden victory means that another round of vast fiscal stimulus is only a matter of time, which should be bullish for gold over the longer term.