Commodities Daily - September 15, 2021

> Oil stabilizes ahead of weekly EIA inventory report. This morning, Brent is trading near $74/bbl with tailwinds coming from API data showing draws in stocks of crude, gasoline and distillates and headwinds from China, where industrial production data showed crude oil processing having fallen to the lowest in 15 months in August. Today, investors will eye the weekly EIA inventory update on US crude oil and refined product inventories, which in our view is most likely to be upbeat across most categories, supporting Brent toward $75/bbl later today.> Gold gains as US inflation slows. Gold rose from $1,790/oz to $1,800/oz yesterday as the 10y Treasury yield slid from 1.32% to 1.28%, creating tailwinds for bullion. Meanwhile, EUR/USD remained steady near 1.181. Yesterday, investors were focused on the US CPI print for August, which turned out the lowest in seven months. During the Asian session today, gold is trading near $1,800/oz. Today, the market awaits US industrial production for August, the Empire State manufacturing index for September and eurozone industrial production for July. We expect bullion to remain range-bound at $1,790-1,810/oz today.> Metals extend losses on inflation data, iron ore in panic on Chinese steel curbs. Base metals trade lower, as investors took a mixed view on yesterday's US inflation print and are awaiting next week's Fed meeting. This morning's weak industrial production numbers in China and much lower crude steel output in August are driving iron ore prices down further, with the outlook still negative.OIL STABILIZES AHEAD OF WEEKLY EIA INVENTORY REPORTYesterday, Brent traded mostly near $74/bbl, with investors first digesting an upbeat monthly IEA oil market report. It ended up settling at $73.60/bbl, $0.09/bbl above the previous settlement. The IEA revised its 2022 oil demand estimates slightly higher, while also lowering its non-OPEC supply growth estimate for this year (led by the US and Brazil) and for next (after revising 2022 Russian production massively higher last month, the IEA has now marked it lower). It highlighted that "unplanned production outages have temporarily halted an uptrend in world oil supply that began in March, but growth is set to resume in October." Another highlight was that, given signs that the coronavirus resurgence is abating, the agency expects a sharp rebound in demand next month, with continued growth to the end of the year. The IEA thinks that only by early 2022 will supply be high enough to allow oil stocks to be replenished. Tropical Storm Nicholas had little impact on offshore oil output in the Gulf of Mexico, but briefly shut the country's largest gasoline pipeline. In addition, yesterday risk assets avoided a potential selloff as the US August CPI only climbed 0.3% (below the 0.4% consensus and slower than the 0.5% inflation seen last month), while the 5.3% y-o-y increase was in line with the consensus and below the 5.4% y-o-y reading last month. This comes ahead of next week's Fed meeting, where officials will debate how and when to begin tapering asset purchases. Chairman Jerome Powell said last month that the Fed could begin reducing its monthly bond purchases this year, but did not give a specific time frame. This morning, Brent is trading near $74/bbl, with tailwinds coming from API data showing draws in stocks of crude oil (by 5.44 mln bbl), gasoline (by 2.76 mln bbl) and distillates (by 2.89 mln bbl) and headwinds from China, where industrial production data showed crude oil processing having fallen in August to the lowest level in 15 months. Meanwhile, China's National Food and Strategic Reserves Administration (NFSRA) announced its first public auction of crude oil from the strategic petroleum reserves, to be held on September 24, releasing a total of only 7.38 mln bbl to refineries (and we believe this will be the only auction for 2021) in a bid to cool down rising feedstock prices and domestic inflation. However, we do not believe that this will dent China's appetite for crude in the global market. Today, investors will eye the weekly EIA inventory update on US crude oil and refined product inventories, which in our view is most likely to be upbeat across most categories, supporting Brent toward $75/bbl later LD GAINS AS US INFLATION SLOWSGold rose from $1,790/oz to $1,800/oz yesterday as the 10y Treasury yield slid from 1.32% to 1.28%, creating tailwinds for bullion. Meanwhile, EUR/USD remained steady near 1.181. Yesterday, investors were focused on the US CPI print for August, which turned out the lowest in seven months at 0.3% m-o-m, below the 0.4% consensus (the 5.3% y-o-y figure was in line with expectations). However, the core CPI showed a moderate 0.1% m-o-m inflation, while the market consensus was 0.3% (y-o-y it came in 4.0% higher versus the 4.2% consensus). This seemed to support the view of those who believe the elevated inflation is transitory and due to the economy reopening and driven largely by supply disruptions. This backdrop created support for gold as markets corrected expectations of Fed tightening, now seeing more space before QE tapering. However, supply chain problems remain in the US economy and rising wages are also pushing prices higher. This could drive inflation higher in the coming month, as the August data was affected by the spread of the Delta variant and subdued airfare, hotel and restaurant prices. Meanwhile, yesterday the NFIB small business optimism index for August came in at 100.1 points, above the 99.0 consensus, which limited bullion's upside.During the Asian session today, gold is trading near $1,800/oz. Today, the market awaits US industrial production for August, the Empire State manufacturing index for September and eurozone industrial production for July. The consensus for US industrial production is 0.5% m-o-m growth. Meanwhile, eurozone July industrial production is expected to be up 0.6% m-o-m after a 0.3% decrease in June. We expect bullion to remain range-bound at $1,790-1,810/oz TALS EXTEND LOSSES ON INFLATION DATA, IRON ORE IN PANIC ON CHINESE STEEL CURBSYesterday, base metals closed in the red. Three-month LME contracts on copper were down 1.08% (-$103 from the previous day's close) to settle at $9,431/tonne, aluminum edged down 2.20% (-$64) to $2,828/tonne, nickel dropped 0.62% (-$122) to $19,598/tonne, while zinc was 1.01% lower (-$34) to settle at $3,043/tonne.Base metals extended losses further on Tuesday despite the lower than expected US CPI increase in August. The metals' reaction to the inflation data proved that investors are still preoccupied with the uncertainty over the pandemic. Profit taking in aluminum and nickel drove the rest in the same direction, while markets continue to worry about the lower pace of growth of the Chinese economy and that further stimulus might not come.Following yesterday's US and European data, this morning saw Chinese industrial production numbers for August come in below expectations (+5.3% y-o-y versus the expected +5.8%), while Chinese crude steel output plunged 13% y-o-y to 83 mln tonnes. This pushed iron ore prices $127/tonne lower in Singapore, thus extending what is already a four-day selloff. The metal has been hit from both sides: China's curbs on steel production have dented demand, while higher global supplies have flooded the market. While miners are likely to step in to curb supply, as typically do during times of glut, China has proved to be consistent in its intentions to keep steel output close to last year's level. That said, iron ore may well drop back below the $100