Commodities Daily - September 17, 2020

> Oil slides ahead of OPEC+ JMMC meeting. Today, oil investors will focus on the outcome to the OPEC+ JMMC video conference and subsequent comments by various energy ministers. Many are wondering whether Saudi Arabia will deepen production cuts again or even revert to phase one of the OPEC+ deal in response to Brent's recent move below $40/bbl, though we are confident that such this option will not be in the cards today. Instead, we think the focus will remain on improving compliance. Following Brent's failure to break resistance at $42.4/bbl and amid a lack of bullish surprises from OPEC+ and production platforms in the US Gulf preparing to resume output following Hurricane Sally, we think Brent is likely to retreat toward technical support at $41.2/bbl today. > Gold declines in wake of FOMC meeting. Today, gold investors will be focusing on US macro data, including US building permits, housing starts, continuing jobless claims and the Philadelphia Fed business outlook survey. A further decline in the gold price will depend on whether this wave of data beats or falls short of consensus expectations. The technical picture suggests that gold is likely to drop into a $1,906-1,927/oz range, having broken support at $1,940/oz this morning.OIL SLIDES AHEAD OF OPEC+ JMMC MEETINGBrent gained almost $1/bbl and was trading near $41.5/bbl ahead of yesterday's EIA report, with investors brushing off downbeat US retail sales data for August, which was up 0.6% m-o-m but came in below the consensus forecast of 1% growth. US retail sales have been slowing since the economy reopened early in the summer and saw the revival of a big chunk of consumer spending, which accounts for more than two-thirds of US economic activity. People are spending more on motor fuel, with US gas station receipts up 0.4% m-o-m, but this largely reflected an increase in the cost of gasoline. Despite gasoline costing much less y-o-y, demand remains lackluster amid ongoing economic restrictions and with tens of millions of people working from home.Later on, the EIA report indicated a 4.39 mln bbl drop in US crude oil stocks to 496 mln bbl amid a 0.41 mln bpd decline in imports to 5 mln bpd and a strong 0.7 mln bpd increase in refinery inputs to 13.49 mln bpd as Gulf Coast refiners have resumed operations following Hurricane Laura. A 0.9 mln bpd rise in crude oil production to 10.9 mln bpd (deep-water production in the Gulf continued to come back online following the hurricane) and a 0.35 mln bpd contraction in exports to 2.6 mln bpd were insufficient to offset the overall drawdown. Inventories at Cushing, the WTI delivery hub, were down 0.07 mln bbl to 54.28 mln bbl. By contrast, the refined product data was mostly downbeat, with gasoline stocks easing 0.38 mln bbl to 231.5 mln bbl and distillate stocks climbing 3.46 mln bbl to 179.3 mln bbl. Total commercial petroleum stockpiles (oil and refined products combined, excluding strategic petroleum reserves) were up 4.3 mln bbl, the first weekly increase since mid-July. Apart from distillates, the main contributor to this buildup was the "other oils" category (up 6.5 mln bbl). Following the release, Brent began to generate positive momentum and targeted the $42.5/bbl mark, as the crude stock draw reinforced investor belief that inventory is clearing as oil demand normalizes. The moving average for gasoline demand was essentially level, despite the big holiday weekend, whereas demand should have been up.Today, oil investors will focus on the outcome to the OPEC+ JMMC video conference and subsequent comments by various energy ministers. Many are wondering whether Saudi Arabia will deepen production cuts again or even revert to phase one of the OPEC+ deal in response to Brent's recent move below $40/bbl, though we are confident that such this option will not be in the cards today. Instead, we think the focus will remain on improving compliance among countries such as Nigeria, Iraq and the UAE. We believe that Saudi Arabia is confident that compliance will improve from next month, which will erode some of the inventory overhang east of the Suez. Also on the agenda today are US building permits, housing starts, continuing jobless claims and the Philadelphia Fed business outlook survey. Following Brent's failure to break resistance at $42.4/bbl and amid a lack of bullish surprises from OPEC+ and production platforms in the US Gulf preparing to resume output following Hurricane Sally, we think Brent is likely to retreat toward technical support at $41.2/bbl today.GOLD DECLINES IN WAKE OF FOMC MEETINGGold rallied almost $22/oz yesterday morning to reach the $1,973/oz mark as investors were pricing in a dovish outcome to the FOMC meeting, with the Fed expected to provide assurances that interest rates would remain near zero for several years as the US economy continues to recover from the coronavirus fallout. Fed Chairman Jay Powell delivered a downbeat message on the prospects for the US recovery (and by implication the global economy) without more fiscal stimulus while emphasizing that the Fed would be as dovish as it has ever been for years to come (which was already priced in). He guided flat rates for the next three years and reiterated the shift to looser control over inflation. Investors latched on to the first part of the message about the economy's tepid prospects, which caused long-term Treasury yields to come off session lows. The 10y and 30y yields climbed to session highs of 0.70% and 1.46%, respectively, during Powell's press conference, while the dollar also pared losses (this morning, EUR/USD fell below 1.175, down from almost 1.19 on Tuesday). These sorts of moves in Treasury yields and the dollar typically pressure gold, and yesterday was no exception. This morning, gold briefly fell below $1,940/oz. However, we think this is likely to be a short-term correction, as gold bulls are likely to gain from the Fed's latest offering in the longer run, especially the likelihood that rates will be held close to zero for at least three years. One key highlight for gold is that the Fed has made rate hikes conditional on inflation topping 2% and maximum employment being achieved, and reaching both targets will be very difficult, in our view, thereby ensuring low rates for a long time. This could echo the period from late 2008 through to late 2015, when rates were kept pinned to the floor, helping gold to embark on long upward trajectory and set a record in 2011 that held until this year.Today, gold investors will be focusing on US macro data, including US building permits, housing starts, continuing jobless claims and the Philadelphia Fed business outlook survey. A further decline in the gold price will depend on whether this wave of data beats or falls short of consensus expectations. The technical picture suggests that gold is likely to drop into a $1,906-1,927/oz range, having broken support at $1,940/oz this morning.