Commodities Daily - September 13, 2021

> Oil prices rise ahead of the busy week. This morning, Brent has rallied to as high as $73.55/bbl before easing back toward $73/bbl on a stronger US dollar. Today, investors are eyeing OPEC's monthly market report and the EIA's monthly drilling productivity report, which will include the shale oil production growth forecast for October. We think that Brent is most likely to retest $73.7/bbl resistance that it failed to break on a couple of occasions recently. The slow restoration of crude oil supplies in the Gulf of Mexico remains the key supporting factor. > Gold lower amid further signs of inflation pressure in the US. Gold dropped from $1,795/oz to $1,790/oz on Friday as EUR/USD corrected from 1.183 to 1.181 and the US PPI data showed a higher than expected increase in August. Gold is trading near $1,790/oz as we write. No important macro releases are scheduled for today. We expect bullion to remain range-bound at $1,790-1,810/oz today.> Base metal prices rise, bullish supply-side factors for copper fading. Base metals continued to rally on Friday following the reported surge in China's PPI. Aluminum has nearly reached $3,000/tonne amid support from both supply- and demand-side factors, while the concerns over Chilean copper supply are easing, as progress has been made in contract negotiations with workers at two mines.OIL PRICES RISE AHEAD OF THE BUSY WEEKOn Friday, front-month Brent rallied $2.2/bbl to as high as $73.15/bbl, as more than a 1 mln bpd of US offshore crude production remains shut in after Hurricane Ida swept through the region nearly two weeks ago, while more Louisiana refineries have been boosting operations, which is raising demand for crude oil. The positive momentum in oil came despite the US stock market falling for a fifth straight day on Friday, with the S&P 500 ending the week down 1.7%, its longest losing streak since February. Although the oil market remains fundamentally strong, it is losing the broad support it enjoyed earlier from the strong stock market rally, which seems to be a thing of the past: the S&P 500 has now gone 34 days without rising by 1% on a single day. Meanwhile, companies continue to feel significant price pressures. The US PPI increased solidly in August (+0.7%), leading to the biggest annual gain in nearly 11 years (8.3% y-o-y), suggesting that high inflation is likely to persist for some time to come as the pandemic continues to pressure supply chains. Furthermore, the ongoing march of Covid-19 even as vaccine rollouts accelerate is undermining confidence in the economic recovery and is also contributing to supply-shock inflation. Key central banks are also getting closer to paring pandemic-era stimulus, which poses risks to financial markets.This morning, despite the stronger US dollar, Brent has rallied to as high as $73.7/bbl. Today, investors will be eyeing the monthly OPEC market report and the EIA's monthly drilling productivity report, which will include the shale oil production growth forecast for October. We think that Brent is most likely to retest $73.7/bbl resistance that it failed to break on a couple of occasions recently. The slow restoration of crude oil supplies in the Gulf of Mexico remains the key supporting factor. As for this week, investors will also be eyeing the monthly IEA oil market report and what should be another set of upbeat US oil and refined products inventory data. Also, US August CPI data, retail sales and industrial production are due this week. China's August industrial production will garner attention. Furthermore, we recall that last week China released oil from its strategic petroleum reserves. According to a spokeswoman for China's National Food and Strategic Reserves Administration, more details (likely including exact volumes and timing of further sales) will be released in due course. Oil has struggled for direction in recent weeks, with multiple headwinds remaining, such as the negative stock market momentum, stronger US dollar, China's release of oil from SPR and what will likely be downbeat OPEC and IEA reports this week. We would also note that the IEA last month warned that the resurgent virus "could derail the recovery just as more barrels hit the market." However, despite these multiple headwinds, we think Brent will be able to push toward $75/bbl this week amid fundamental strength (rapidly falling inventories will be the major highlight of this). This is being magnified by the aftermath from the hurricane, which has had a strong net bullish impact on US and global oil and refined product LD LOWER AMID FURTHER SIGNS OF INFLATION PRESSURE IN THE USGold fell from $1,795/oz to $1,790/oz on Friday as EUR/USD corrected from 1.183 to 1.181. The 10y Treasury yield rose from 1.30% to 1.34%, creating headwinds for bullion. On Friday, markets were focused on the US PPI print for August, which showed a 0.7% m-o-m increase, just above the 0.6% consensus, while the y-o-y figure came in at 8.3% (consensus: 8.2%). However, the PPI stripping away food and energy - thus making it less volatile - was in line with expectations at 0.6% m-o-m growth. With price growth in the US remaining at high levels and mostly above market expectations, concern is mounting that the Fed could start tapering QE despite the moderate recovery pace in the labor market. Such concern serves to pressure bullion. Additional headwinds for gold were provided by comments by Fed officials. Philly Fed President Patrick Harker sees the tapering process starting sooner rather than later and also suggested that a first rate hike would be appropriate in late 2022 or at the beginning of 2023. Meanwhile, Cleveland Fed President Loretta Mester doubted that inflation remains transitory and suggested that it is likely to last longer than previously thought. She also mentioned that she would still like the tapering to begin this year.This morning, gold is trading near $1,790/oz. There are no important macro releases scheduled today. Looking ahead, we would highlight US CPI data on Tuesday and US retail sales on Thursday (both for August). There are a number of other US releases this week as well: the NFIB small business optimism index for August, NY Empire state manufacturing index for September, industrial production for August, Philadelphia Fed manufacturing survey for September, business inventories for July, University of Michigan consumer sentiment index for September and weekly initial jobless claims. The eurozone will see industrial production for July and CPI for August. We expect bullion to remain range-bound at $1,790-1,810/oz SE METAL PRICES RISE, BULLISH SUPPLY-SIDE FACTORS FOR COPPER FADINGOn Friday, base metals closed in the green. Three-month LME contracts on copper surged 3.19% (+$300/tonne from the previous close) to settle at $9,688/tonne, aluminum rose 3.17% (+$89/tonne) to $2,925/tonne, nickel edged up 1.11% (+$225/tonne) to $20,410/tonne and zinc moved 1.22% higher (+$38/tonne) to settle at $3,112/tonne.Last Friday, base metals continued to rally in the wake of the higher than expected Chinese PPI print. Aluminum hit another 13-year high and is now nearing the $3,000/tonne mark amid growing concerns over supply constraints with demand still on the rise. However, some of the trading activity still seems to be speculative in nature, implying that we could see some profit taking sooner or later. We expect to see increased volatility as aluminum moves closer to $3,000/tonne.Copper was the top performer on Friday, extending its outperformance versus aluminum, whose competitiveness versus copper is fading fast. It is now gradually moving toward resistance around $8,450/tonne, with strong support still coming from the dovish Fed and the general rally in global commodity markets. Meanwhile, in Chile, plant workers at a Codelco mine (Andina) have agreed to end their strike, while workers at BHP's Cerro Colorado mine have accepted a renewed wage proposal, which should ease the concerns over supply constraints. With Chile nearing the end of a period of contract renewals, we expect the supply-side price support to fade