Commodities Daily - October 5, 2021

> Oil prices surge as OPEC+ maintains slow and steady production increase strategy. This morning, Brent is trading near $81.5/bbl, weighed down by the stock market selloff. Investors are primarily watching out for September services and composite PMIs from the eurozone and US, while the API weekly update on US oil and refined product inventories will be the main highlight overnight. We think Brent will likely stabilize near $82/bbl for the time being as the expansion in US service sector activity likely slowed in September and the API will likely show mixed inventory data. > Gold advances amid market concerns. Gold climbed from $1,760/oz to almost 1,770/oz yesterday, while the US 10y Treasury yield edged up from 1.47% to 1.48%. Gold is trading near $1,750/oz as we write. Today, the market awaits Markit services PMIs for DMs and the US ISM services PMI for September, the eurozone PPI for August, and the US trade balance for August. We expect bullion to test support at $1,745/oz today.> Metals mostly higher in absence of China news. Base metals closed mostly higher as China is still on holiday, with no major developments in sight. Investor attention has partially shifted to the US, where a very important jobs report is set to come out at the end of the week.OIL PRICES SURGE AS OPEC+ MAINTAINS SLOW AND STEADY PRODUCTION INCREASE STRATEGYYesterday, Brent rallied $3.25/bbl to as high as $82/bbl after OPEC+ agreed to push ahead with the planned 0.4 mln bpd production increase for November, despite various reports that an increase of up to 0.8 mln bpd was being considered amid the spike in natural gas prices. For the second month in a row, there was also no press conference after the meeting, which itself lasted less than 30 minutes. This means no guidance about whether the monthly 0.4 mln bpd increases could be accelerated if oil prices continue to tick higher. We think there is potential for OPEC+ to revise its current plan and accelerate the supply increases in the coming months, but this would likely demand a sharp move higher in Brent, with prices subsequently sustaining above $80/bbl for at least a month. Factors that could contribute to such a price move include unforeseen production outages, a colder than usual winter, a further spike in gas prices and political pressure on OPEC+ from consumer nations keen on restraining inflationary pressures. But until this actually happens, Saudi Arabia and other OPEC+ members are in no hurry to alter the agreement. Moreover, as we noted yesterday, the structure of the current OPEC+ deal is very complicated, so a strong political and economic impetus would be required to reopen negotiations, especially as this would open the door to requests for further production baseline amendments.Crude prices have ticked up following the meeting. In order to restrain volatility, today we expect Saudi Aramco to lower its November official selling prices for Asian customers (perhaps by more than the formula suggests) for the second straight month, implying higher competitiveness in the key consuming region. Despite this, Asian buyers are likely to become increasingly vocal about the need for OPEC+ to add more supply if prices keep advancing. The July communique from OPEC+ stated that the group would "assess market developments" in December 2021, so we believe that all else being equal, December is the most likely time for a discussion about whether market balances justify faster production increases. By that time, there may well be a sense of how countries are coping with another Covid-19 winter and how demand is faring as a result.This morning, Brent is trading near $81.5/bbl, weighed down by a stock market selloff, with investors primarily watching out for September services and composite PMIs from the eurozone and US, with the API weekly update on US oil and refined product inventories to be the main highlight overnight. We think Brent is likely to stabilize near $82/bbl for the time being as the expansion in US service-sector activity likely slowed in September and the API will likely show mixed inventory data. LD ADVANCES AMID MARKET CONCERNS Gold rose from $1,760/oz to almost 1,770/oz yesterday, while the US 10y Treasury yield edged up from 1.47% to 1.48%. EUR/USD firmed from 1.160 to 1.162, supporting gold. US factory orders expanded 1.2% in August, moderately above the 1.0% consensus and the revised figure of 0.7% for July (0.4% previously reported). This should have created optimism over the US economic recovery, but uncertainty and market worries snuffed out the positive sentiment. Gold was one of the beneficiaries of yesterday's news flow. The Bloomberg Commodity Spot Index, which tracks 23 energy, metals and crop futures contracts, rose to a record high, fueling fears of stagflation, with rising prices and stagnating incomes. Moreover, the US government debt issue remains unclear, with President Joe Biden warning that the government is at risk of breaching the legal limit in two weeks and blaming Senate Republicans. Additional uncertainty came from stock markets, which were dealt a blow by the Facebook shutdown, causing tech shares to slide and creating tailwinds for bullion. In China, another developer, Fantasia Holdings Group, failed to repay its notes, renewing default concerns over its bigger rival, Evergrande.Gold has slid to $1,750/oz as we write as the 10y Treasury yield has advanced to just below 1.5% while EUR/USD has retreated to 1.159. Today, the market awaits Markit services PMIs for DMs and the US ISM services PMI for September, the eurozone PPI for August, and the US trade balance for August. Despite yesterday's positive developments for bullion, it remains under pressure from Fed QE tapering risk. We expect gold to test support at $1,745/oz TALS MOSTLY HIGHER IN ABSENCE OF CHINA NEWSYesterday, base metals closed mostly higher. The 3m LME contract for copper was up 1.28% (+$117/tonne from the previous day's close) to settle at $9,271/tonne, aluminum edged up 1.20% (+$35/tonne) to $2,905/tonne, nickel remained about flat at $18,035/tonne and zinc added 1.21% (+$36/tonne) to settle at $3,041/tonne.Metals traded higher amid tepid trading in the absence of news from China, which is still on a national holiday through Thursday. Investors are relatively relaxed and are awaiting the US jobs report at the end of the week, which will provide some indication on when the Fed might begin QE tapering and then hiking rates.Copper is back in the long-held range of $9,200-9,600/tonne it had traded in since mid-June. A tight market, due to a persisting deficit this year, has allowed copper to maintain its momentum despite the Chinese property market turmoil and Chinese authorities' efforts to rein in commodity markets. With regard to the former, yesterday highly leveraged Chinese firms saw their shares and bonds tumble after another developer, Fantasia, failed to repay notes. Although the company is much smaller than Evergrande, the news affected overall sentiment. We expect news around the Chinese property sector to dominate the agenda for copper in the near future, until there is more clarity on whether there will be a bailout by the Chinese