Commodities Daily - October 7, 2021

> Oil slides on downbeat EIA inventory report, US raising prospect of SPR release. Yesterday, Brent slid from as high as $83.47/bbl to as low as $80.6/bbl, with the EIA showing growing crude oil and gasoline stockpiles. The US energy secretary raised the prospect of releasing crude oil from the Strategic Petroleum Reserve, while Russian President Putin indicated that the country would ramp-up gas exports to stabilize energy markets. This morning, Brent is hovering below $81/bbl, with investors eyeing US weekly jobless claims ahead of the nonfarm payrolls data on Friday. In our view, Brent is likely to continue facing headwinds today and will attempt to stabilize within the $80-81/bbl range following yesterday's bearish news flow.> Gold holds steady despite optimistic US private payrolls report. Gold traded sideways around the 1,760/oz mark yesterday, despite an upbeat ADP employment report, while the US 10y Treasury yield stayed near 1.53%. Gold is trading near $1,755/oz as we write. Today, the market awaits the minutes to the ECB monetary policy meeting and US weekly initial jobless claims. We expect bullion to remain in a $1,745-1,765/oz range today.> Metals mostly lower; investors looking ahead to China return from holiday, US jobs report on Friday. Base metals closed generally lower yesterday, with the Chinese power crunch and property market crisis still driving the markets. While there are some concerns on the supply side in the copper market, we see Chinese demand as the key story for copper quotes.OIL SLIDES ON DOWNBEAT EIA INVENTORY REPORT, US RAISING PROSPECT OF SPR RELEASEYesterday, Brent slid from as high as $83.47/bbl to as low as $80.6/bbl. In its weekly inventory update, the EIA showed growing crude oil and gasoline stockpiles. Crude oil inventories had a surprise build of 2.35 mln bbl (the API earlier reported a build of 0.95 mln bbl). This seems attributable to a recovery in crude oil production and a drop in exports. Production was up 0.2 mln bpd to 11.3 mln bpd, corresponding to levels last seen before Hurricane Ida shut wells in the Gulf of Mexico, while exports took a breather after a backlog of vessels was cleared. An increase of 0.48 mln bpd in crude imports also added to stocks, with net crude imports rising to their highest level since June 2020. Meanwhile, nationwide refineries operated at higher rates of 89.6% of capacity last week. On the Gulf of Mexico refineries ran at 88.5%, as activity continues to be ramped-up following the hurricane. Higher refinery production was one of the factors resulting in a 3.25 mln bbl increase in gasoline inventories. However, oil processing is expected to drop in the coming weeks as refiners will enter maintenance season. Gasoline demand as measured by the four-week rolling average fell for a fourth straight week, following the end of the summer driving season, with higher retail prices also weighing on demand. Total oil and refined product inventories (excluding SPR), however, were almost unchanged w-o-w amid moderate draws in jet fuel, distillates, fuel oil, propane and the "other oils" category. For the next week, we expect the EIA data to be more price-supportive and to see a small draw on crude and a larger one for distillate storage.Oil extended declines late in the session after the Financial Times reported that the US is raising the prospect of releasing emergency oil reserves. The US energy secretary highlighted that "all tools are on the table" and did not rule out a crude oil export ban, the FT said. Another headline helping to ease prices yesterday came from Russian President Vladimir Putin, who indicated that the country would ramp-up gas exports to stabilize energy markets. This helped pare back an exponential gas price surge. High gas prices imply additional oil demand this winter, as switching from gas to hydrocarbon liquids is now quite economically viable. This morning, Brent is hovering just below $81/bbl, with investors eyeing US weekly jobless claims ahead of Friday's nonfarm payrolls data. In our view, Brent is likely to continue facing headwinds today and will attempt to stabilize within the $80-81/bbl range following yesterday's bearish news LD HOLDS STEADY DESPITE OPTIMISTIC US PRIVATE PAYROLLS REPORT Gold traded sideways around the 1,760/oz mark yesterday, while the US 10y Treasury yield stayed at 1.53%. EUR/USD weakened from 1.160 to 1.156, creating pressure for bullion. Yesterday's macro data generally pressured gold. Eurozone retail sales for August grew much less than expected, by 0.3% m-o-m (0.8% consensus) and 0% y-o-y (0.3% consensus). The European recovery is proceeding patchily, strengthening the view that the ECB will support the economy for longer, which pressured the euro yesterday. The ECB reinforced that view as officials announced that it is considering a new bond-buying program to prevent market turmoil once the current program expires next year. Meanwhile, US private payrolls for September increased by 588k, above the consensus forecast of 430k. That created some concern among gold investors over tomorrow's nonfarm payrolls, which could be brighter than previously expected, though we have seen a considerable disparity between the two figures in recent months. But the gold price ultimately brushed aside yesterday's data. Moreover, the drop in natural gas prices yesterday afternoon eased inflation concerns and helped gold, as investors started to anticipate less hawkish monetary policy from the Fed. Some of the uncertainty was eased yesterday with an announcement that Senate Democrats and Republicans had struck a deal to push back the debt ceiling deadline to December.Gold is trading near $1,755/oz as we write. Today, the market awaits the minutes to the last ECB monetary policy meeting and US weekly initial jobless claims. Tomorrow's nonfarm payrolls could provide a big clue as to when the Fed will taper QE, and if the numbers are as upbeat as yesterday's private payrolls, gold will be unable to resist the pressure. We expect bullion to remain in a $1,745-1,765/oz range TALS MOSTLY LOWER; INVESTORS LOOKING AHEAD TO CHINA RETURN FROM HOLIDAY, US JOBS REPORT ON FRIDAYYesterday, base metals closed in the red. The 3m LME contract for copper was down 0.62% (-$57/tonne from the previous day's close) to settle at $9,091/tonne, aluminum edged down 0.79% (-$23/tonne) to $2,900/tonne, nickel dropped 0.08% ($15/tonne) to $18,105/tonne, $18,035/tonne, and zinc slid 1.16% (-$35/tonne) to $3,014/tonne.Metal markets continued to be driven by developments in China with regard to the power crunch and property sector crisis as investors are realizing that these two stories are likely to remain key for a long time. Because of that, we expect base metals to remain under pressure, especially those dependent on the construction sector (copper). Tomorrow, we might see elevated volatility as China goes back to work after a week-long holiday. In addition, tomorrow sees the US jobs report for September, which will provide clues on when QE tapering might be launched by the Fed.Meanwhile, there are some near-term concerns over copper supplies, as earlier this week Brazilian miner Vale said production of copper concentrate at its Salobo mine had been suspended due to a fire. While it is too early to assess the impact of the accident on global supply, preliminary estimates indicate that production might be resumed by the end of the month. Meanwhile, supply concerns have resurfaced in Peru as an indigenous community has blocked a key mining road, threatening the copper supply chain. However, copper has hardly been reacting to such news, and we believe China will remain the key factor for copper quotes in the immediate future. We stick to our bearish view on copper and see it gradually falling below $9,000/tonne throughout the end of