Commodities Daily - October 7, 2020

> After rallying so far this week, oil prices under pressure ahead of EIA inventory data. We expect the EIA data to show a 2-3 mln bbl increase in US crude inventories amid higher imports and lower exports. In our view, how oil prices would react to this will depend largely on whether the crude build outweighs the expected draw in total refined products. Overall, we believe that the risks for oil prices are skewed to the downside today amid the US fiscal stimulus news and what we expect to be a reported US crude oil stock build. We think Brent is likely to first test technical support at $41.6/bbl, with a break below causing a fall to the $41.0/bbl support level.> Gold tumbles after Trump ends fiscal stimulus talks with Democrats. Today, global markets will be adjusting to the collapse of the US stimulus talks. Also, the US will see the vice presidential debate. The analytical chapters of the latest IMF World Economic Outlook are being released today and tomorrow. The FOMC minutes will be the most relevant macro release for gold prices today, while remarks from ECB President Christine Lagarde and four regional Fed presidents will also be key. China's Caixin services and composite PMIs will be reported early tomorrow morning. As we write, gold is battling with the $1,896/oz technical resistance level. A break above likely to lead to a gain to $1,910/oz, although we note that yesterday's correction exposed gold to the September 24 low of $1,847/oz.AFTER RALLYING SO FAR THIS WEEK, OIL PRICES UNDER PRESSURE AHEAD OF EIA INVENTORY DATA After hovering below the $41.5/bbl mark to start the day yesterday, front-month Brent began to rise on a weakening US dollar, peaking near $42.8/bbl in the early US trading hours. It later took a slide toward $42.0/bbl and eventually settled at $42.65/bbl, fixing $1.36/bbl above the previous settlement. An upbeat development yesterday was Saudi Aramco, which had been expected to keep its November official selling prices little changed for Asian buyers, raised them for its flagship Arab Light crude to Asia (it had lowered them in September and October amid stagnating demand). The prices for the Mediterranean region were also lowered, while those for the US were unchanged. Meanwhile, Norway's Lederne labor union said it would expand its ongoing oil strike starting on Saturday unless a wage deal can be reached. Six offshore oil and gas fields remain shut down because of the strike, which means a drop in the country's output capacity by 8%. In addition, US Gulf Coast energy companies have begun to evacuate workers for the sixth time this year as Hurricane Delta bears down, with almost 30% of offshore oil production in the Gulf now shut.Later in the day yesterday, oil investors turned their attention to the EIA monthly report, which was downbeat. It contained a new forecast that US crude production will fall by only 0.80 mln bpd this year at an average of 11.45 mln bpd, versus the 0.87 mln bpd drop forecast a month ago. Note that next year production is seen averaging 11.1 mln bpd. Also on the bearish side was the EIA's downgrade of its 2020 global demand forecast by 0.23 mln bpd for an 8.62 mln bpd y-o-y drop to 92.84 mln bpd, with demand estimates for 2021 also lowered by 0.51 mln bpd to 99.1 mln bpd. The main source of pressure on oil prices yesterday, however, came from President Trump's surprising announcement that fiscal stimulus talks with Democrats would be halted - the abruptness of the decision sent all risk assets sharply lower.Overnight, the API reported that US crude stocks rose 0.95 mln bbl last week to 495.4 mln bbl (the previous estimate was 492.4 mln bbl). The buildup came amid a 0.2 mln bpd rise in imports and despite a 0.16 mln bpd increase in refinery runs. Crude stocks at Cushing rose 0.75 mln bbl. The refined product data was upbeat, showing a 0.87 mln bbl draw in gasoline stocks and a 1 mln bbl decrease in distillate stocks. The EIA inventory report is due today at 17:30 Moscow time. The Bloomberg consensus is for a 1.2 mln bbl crude stock draw, a 0.5 mln bbl decrease in gasoline stocks and a 1.1 mln bbl draw in distillate stocks. We expect the EIA data to show a 2-3 mln bbl increase in US crude inventories amid higher imports and lower exports. In our view, how oil prices would react to this will depend largely on whether the crude build outweighs the expected draw in total refined products. Data from GasBuddy indicates that US gasoline consumption rose 3.2% in the week ending October 3, the first w-o-w rise in almost a month. Overall, we believe that the risks for oil prices are skewed to the downside today amid the US fiscal stimulus news and what we expect to be a reported US crude oil stock build. We think Brent is likely to first test technical support at $41.6/bbl, with a break below causing a fall to the $41.0/bbl support level.GOLD TUMBLES AFTER TRUMP ENDS FISCAL STIMULUS TALKS WITH DEMOCRATSAfter gaining around $10/oz to $1,920/oz during the first half of the day yesterday on a weaker dollar, gold prices began to tumble, falling toward $1,880/oz overnight. At first gold was pressured by comments from Fed Chairman Jerome Powell, who delivered warning signals that the US economic recovery remains far from complete and could still slip into a downward spiral if the coronavirus is not effectively controlled and growth sustained. It was clear that he sees a new, broad stimulus package as essential to maintaining the US (and global) market recovery.The main news of the day came late in the US session, when the US president ordered congressional Republicans to give up on stimulus negotiations prior to the November 3 election. The S&P 500 fell more than 2% shortly after the news, leading to a 1.4% retreat for the day, as investors sought safety in the dollar (EUR/USD slid to 1.173 as the result), which of course pressured bullion. Trump subsequently tweeted that he is willing to consider various one-off stimulus measures - the partial walking back of his initial remarks is helping gold to pare some of yesterday's losses - but he has not flipped to again supporting negotiations on the $1-3 trln packages that Congress has been discussing for months.Today, global markets will be adjusting to the collapse of the US stimulus talks. Also, the US will see the vice presidential debate. The analytical chapters of the latest IMF World Economic Outlook are being released today and tomorrow. The FOMC minutes will be the most relevant macro release for gold prices today, while remarks from ECB President Christine Lagarde and four regional Fed presidents will also be key. China's Caixin services and composite PMIs will be reported early tomorrow morning. As we write, gold is battling with the $1,896/oz technical resistance level. A break above that would likely to lead to a gain to $1,910/oz, although we note that yesterday's correction exposed gold to the September 24 low of $1,847/oz.