Commodities Daily - September 14, 2020

> Oil prices stabilize with OPEC monthly and EIA drilling productivity reports on the radar. Today, oil investors will be focusing on the OPEC monthly report and EIA drilling productivity report. For the former, the risks are skewed to the downside, with an upbeat revision to this year's oil market outlook regarded as very unlikely given the fundamental backdrop. The EIA's report will contain the agency's US shale output estimates for October. Given the rig counts haven't been declining and the EIA's recent upgrade to its US oil production estimate for this year, the price risks for this report are also skewed much more to the downside. In light of the above, we expect Brent to break below technical support at $39.5/bbl, which would pave the way to the next support level at $38.4/bbl.> Gold stable near $1,945/oz. Friday's inflation data from the US provided a boost to gold prices, albeit short-lived, on Friday. Attention this week has turned from the ECB to the Fed, which will release its policy statement on Wednesday after the two-day FOMC meeting wraps up. Chairman Jerome Powell will speak afterward. CFTC data published on Friday showed that hedge funds have maintained a sizable net long position in gold and thus provided support for prices.OIL PRICES STABILIZE WITH OPEC MONTHLY AND EIA DRILLING PRODUCTIVITY REPORTS ON THE RADAROn Friday, front-month Brent was trading sideways within a $39.4-40.3/bbl range amid a variety of mixed factors at play. It eventually settled at $39.83/bbl, down $0.23/bbl from the previous settlement. Negatives came from Libya, where commander Khalifa Haftar committed to ending a months-long blockade of oil facilities, which raises risks of more supplies hitting the market after OPEC+ raised production in August in response to the very slow oil demand recovery. However, it is still unclear if oil fields and ports in Libya will begin operations. One worrisome development for longer-term oil bulls is the strengthening contango in Brent's futures curve, which is indicating rising concerns about oversupply. This incentivizes the use of floating storage, pushing physical market traders to book tankers to store millions of barrels of crude oil and refined fuels at sea after exiting and profiting from a similar strategy in 2Q20. Meanwhile, oil price support is coming from Sally, a new storm strengthening in the Gulf of Mexico that is poised to become a Сategory 2 hurricane (likely approaching the north-central Gulf Coast late today and tomorrow). Sally is already forcing companies to evacuate rigs and halt production for a second time in less than a month in the wake of Hurricane Laura. Another upbeat development was a statement by the University of Oxford and AstraZeneca that they have restarted the trial of an experimental drug after it was halted over concerns about a participant who fell ill.Today, oil investors will be focusing on the OPEC monthly report and EIA drilling productivity report. Last month's OPEC report was largely downbeat, with the cartel downgrading its global oil demand forecast and raising its non-OPEC production growth estimates. We think the risks are also skewed to the downside this time around, with an upbeat revision to this year's oil market outlook regarded as very unlikely given the fundamental backdrop. The report will also be closely examined by OPEC+ officials ahead of the JMMC video conference on Thursday. The EIA's report will contain the agency's US shale output estimates for October. Given the rig counts haven't been declining and the EIA's recent upgrade to its US oil production estimate for this year, the price risks for this report are also skewed much more to the downside. The EIA may even begin to project tentative m-o-m growth in US tight oil output following a series of monthly decreases. In light of the above, we expect Brent to break below technical support at $39.5/bbl, which would pave the way to the next support level at $38.4/bbl. The upside potential remains limited to $40.1/bbl, with an unlikely strong rally in risk assets leading to a further gain to $40.7/ LD STABLE NEAR $1,945/OZThe US published inflation data on Friday showing that consumer prices were up 0.4% m-o-m in August (versus a 0.6% increase in July), which topped the consensus estimate of a 0.3% increase. Core price growth picked up to 0.4% m-o-m (versus 0.2% expected) and 1.7% in y-o-y terms. The inflation data caused gold prices to climb to $1,954/oz, which makes sense given the Fed's recent comments about targeting an average inflation rate of 2%. However, the move ultimately proved to be short-lived.Also on Friday, the CFTC published data on hedge funds' positioning in gold. Their long positions amounted to 194k contracts as of September 8, up more than 4.5k from the previous week, while short positions were stable at 39k contracts. The data indicated that investors are still upbeat on gold and thus provided support for prices. Today, we expect gold prices to consolidate around $1,950/oz. Investors' attention this week has turned from the ECB to the Fed, which will release its policy statement on Wednesday after the two-day FOMC meeting wraps up. Chairman Jerome Powell will speak