Commodities Daily - September 16, 2021

> Oil prices rise amid upbeat weekly EIA inventory report. This morning, Brent is trading around $75.5/bbl with investors today eyeing US August retail sales, weekly US initial jobless claims data and the September Philly Fed manufacturing index. In our view, today Brent is likely to retest yesterday's high of $76.1/bbl amid fundamental market tightness.> Gold prices down as 10y Treasury yield gains. Gold slid from $1,800/oz to $1,795/oz yesterday as the 10y Treasury yield rose from 1.28% to 1.30%. The macro data showed mixed results yesterday. Gold is trading near $1,790/oz as we write. Today, the market awaits US retail sales for August, the Philly Fed manufacturing survey for September, business inventories for July and weekly initial jobless claims. We expect bullion to remain range-bound at $1,790-1,810/oz today.> Metals higher on the US inflation, aluminum on its way to more fundamentally justified pricing. Base metals are trading higher on the weaker than expected US inflation data, although investors seem to have become less sensitive to the macro factor, as they expect the Fed to turn to tapering already this year. The speculative premium in the aluminum market continues to narrow, with Chinese policy remaining the only factor to the upside.OIL PRICES RISE AMID UPBEAT WEEKLY EIA INVENTORY REPORTYesterday, front-month Brent rallied $2.35/bbl to as high as $76.13/bbl amid fundamentals market tightness with IEA earlier this week warning that recent supply lost due to storms in the US Gulf have offset what OPEC+ has added, meaning the world will have to wait until October for more barrels. Meanwhile, oil drillers in the Gulf of Mexico are struggling to restore output more than two weeks after Hurricane Ida made landfall on the coast of Louisiana, with almost a third of production still idled, which has resulted in a 0.5 mln bpd loss of oil production as of yesterday. The overall output loss is at 27.3 mln bbl since the storm hit, making Ida the most damaging to oil production in 13 years. Yesterday, the EIA reported a 6.42 mln bbl crude oil inventory draw last week to the lowest level since September 2019 amid reduced supplies from the Gulf of Mexico after Hurricane Ida shut oil platforms. Meanwhile, imports fell to the lowest since May as ports shut because of the storm. In the Gulf, refinery utilization (ratio of refinery crude input to total refinery capacity) slid to 72.9% and a restart and ramp-up faces hurdles, such as a lack of power and lack of oil. The Exxon Baton Rouge refinery, for example, was loaned 1.5 mln bbl of oil from the US Strategic Petroleum Reserves. With US Gulf refineries struggling to boost production, nationwide inventories of gasoline continued to shrink (down 1.85 mln bbl) with stocks falling to the lowest since November 2019. That comes despite a weekly drop in demand, which nevertheless was boosted by the US Labor Day holiday. Note that the official driving season in the US is now over and demand tends to fall at this time of the year. Distillate inventories were down almost 1.7 mln bbl (typically distillate stockpiles are higher at this time of year before demand picks up with cooler weather and ahead of the crop harvest). Yesterday, Brent eventually settled at $75.46/bbl, $1.86/bbl above the previous settlement.This morning, Brent is trading around $75.5/bbl with investors today eyeing US August retail sales, weekly US initial jobless claims data and the September Philly Fed manufacturing index. In our view, today Brent is likely to retest yesterday's high of $76.1/bbl amid fundamental market tightness. The recent rise in oil prices is coinciding with a surge in natural gas prices in the US and Europe, while coal and electricity prices are also LD PRICES DOWN AS 10Y TREASURY YIELD GAINSGold slid from $1,800/oz to $1,795/oz yesterday as the 10y US Treasury yield rose from 1.28% to 1.30%. Additionally, EUR/USD slightly decreased from 1.181 to 1.180, creating headwinds for bullion. Despite the mixed macro data yesterday, gold was pressured by a surprisingly upbeat Empire State manufacturing index for September, which rose to 34.3 points (after an 18.3 print in August), with new orders and employment both rising. This is considerably above the expected 17.9 points. This points to a significant improvement in at least some parts of the US economy and fueled concerns about tapering from the Fed. Sentiment was additionally supported by a UN report indicating that the world economy is expected to make its fastest recovery in nearly five decades this year, with 5.3% global GDP growth and 5.7% growth in the US expected. Meanwhile, eurozone industrial production in July rose 1.5% m-o-m, significantly above the 0.6% m-o-m expected, which provided some positive momentum for gold in the middle of the day. US industrial output showed 0.4% m-o-m growth, slightly below the consensus 0.5% growth, although this did not affect gold prices. During the Asian session today, gold is trading near support at 1,790/oz. Today, the market awaits US retail sales for August, the Philadelphia Fed manufacturing survey for September, business inventories for July and weekly initial jobless claims. The consensus for US retail sales is a 0.7% m-o-m decline, as the spread of the Delta strain August is expected to have had an impact. Meanwhile, weekly initial jobless claims are expected to grow to 323k, after a pandemic record low 310k. We expect bullion to remain range-bound at $1,790-1,810/oz TALS HIGHER ON THE US INFLATION, ALUMINUM ON ITS WAY TO MORE FUNDAMENTALLY JUSTIFIED PRICINGYesterday, base metals closed in the green. Three-month LME contracts on copper were up 1.86% (+$176 from the previous day's close) to settle at $9,607/tonne, aluminum edged up 2.32% (+$66) to $2,894/tonne, nickel was higher by 1.72% (+$337) to $19,935/tonne, while zinc saw an increase of 1.06% (+$32) to settle at $3,075/tonne.Base metals' reaction to the weaker than expected US inflation data was positive in the end, with all of the metals higher following the losses of the past two days. The US inflation figures have softened investors' expectations about how quickly the Fed will move toward tapering. Today, meanwhile, metals have returned to the downtrend, with the inflation data likely fully priced in. The pullback in metals hints that investors have become much less driven by macro factors that may affect the Fed's rhetoric. We believe that the reason for the lower elasticity of market sentiment to these factors is likely investors' understanding that tapering will happen already this year regardless.Aluminum is trading lower again today (down 4% from the 13-year peak of $3,000/tonne), as the speculative premium has narrowed following the news that bauxite producers in Guinea had not faced any supply-chain problems after the military coup in the country last week. With the Guinean factor gradually fading away and the Fed's monetary tightening to happen sooner or later this year, we expect aluminum to retreat to at least $2,600-2,700/tonne in the near future. Next year will bring some more supply to the market thanks to a recovery in production and ramp-up of new projects, which will bring the market closer to the fundamental equilibrium. Chinese curbs amid electricity shortages and emissions cuts are currently the key demand-side factor that might keep aluminum prices