Commodities Daily - September 18, 2020

> Oil boosted by Saudi resolve to ensure market recovery. Today, oil investors will be watching out for the preliminary Michigan consumer sentiment index reading for September and the latest Baker Hughes rig count data. Since a promising jump to 78.1 in June, the index has slipped back toward the April lockdown low of 71.8 and remains well below February's pre-pandemic level of 101. The consensus is calling for an improvement to 75.0, which we think would likely support the dollar and thereby limit the upside for oil today. For the US active rig count data, we think a slight decline is likely given WTI's recent correction toward $36/bbl. We expect Brent to rise today and consolidate within the $43.8-44.3/bbl technical range, with support at $43.1/bbl.> Gold prices stabilize after post-FOMC meeting correction. After the disappointment provided by the August US retail sales data, today investors will focus on the September reading of the University of Michigan's consumer sentiment index. We think it could provide a slight surprise to the upside, thus creating headwinds for gold, which as we write is hovering above $1,950/oz. From a technical perspective, gold has the potential to consolidate within a $1,957-1,963/oz range today, although it is unlikely to gain further ground. If it does manage to reach these levels, there is a good chance that it would fail to hold there and fall back toward Thursday's low.OIL BOOSTED BY SAUDI RESOLVE TO ENSURE MARKET RECOVERYFront-month Brent was trading in a $41.5-42.5/bbl range yesterday morning ahead of the OPEC+ JMMC video conference, which began at 15:20 Moscow time. The meeting focused on compliance issues within the group and recommended that members be given until the end of the year to make up for undercompliance via deeper cuts. For example, Iraq's compensatory cuts would average 0.233 mln bpd over the period. The main highlight of the video conference was the Saudi energy minister's condemnation of the signatories that have not complied. The recent IEA monthly report suggested that the UAE, a close Saudi ally, has been one of the main culprits, having met just 10% of its pledged cuts in August. According to Bloomberg, the UAE energy minister was summoned to make a rare post-pandemic trip to Riyadh and had to sit in silence alongside his Saudi counterpart to atone for his country exceeding its output target, with the meeting followed by a communique containing strong wording such as "attempts to outsmart the market will not succeed and are counterproductive when we have the eyes, and the technology, of the world upon us," and that those who transgress "achieve nothing and bring harm to our reputation and credibility."Furthermore, Prince Abdulaziz went as far as to warn short sellers not to challenge the kingdom's resolve, emphasizing that he wanted to ensure that traders were "as jumpy as possible" and that anyone "gambling" on the market would be left "ouching like hell." This, as well as comments such as "We will never leave this market unattended," coupled with the final communique emphasizing the importance of being "proactive and preemptive" and recommending that participating countries take further measures when needed, suggest that there could be a change of direction in production policy before the next major OPEC+ meeting in December. The next JMMC video conference will be held on October 19. This strong Saudi resolve to ensure the market recovery pushed Brent toward the $43.5/bbl mark during yesterday's US trading session, helped by a weakening dollar. It eventually settled at $43.5/bbl, $1.08/bbl above the previous settlement.Today, oil investors will be watching out for the preliminary Michigan consumer sentiment index reading for September and the latest Baker Hughes rig count data. Since a promising jump to 78.1 in June, the index has slipped back toward the April lockdown low of 71.8 and remains well below February's pre-pandemic level of 101. The consensus is calling for an improvement to 75.0, which we think would likely support the dollar and thereby limit the upside for oil today. For the US active rig count data, we think a slight decline is likely given WTI's recent correction toward $36/bbl. We expect Brent to rise today and consolidate within the $43.8-44.3/bbl technical range, with support at $43.1/bbl. Next week, apart from the weekly inventory data updates, investors will see a batch of Chinese oil data throughout the week.GOLD PRICES STABILIZE AFTER POST-FOMC MEETING CORRECTIONDuring the first half of the day yesterday, gold prices fell $27/oz to $1,934/oz as Asian investors reacted to the Fed meeting results, latching on to the message about the dim prospects for the US economy and the fact that the Fed refrained from offering up new stimulus. The disappointing Fed outcome caused EUR/USD to fall toward 1.174, down from almost 1.19 on Tuesday. However, as we had assumed would be the case, the correction in gold was short-lived, as it eventually began to dawn on investors that there were some takeaways that were actually quite positive for gold longer-term, especially the indications that rates will be held close to zero for at least three years. During the US trading session, gold began to consolidate around $1,945/oz as EUR/USD made a U-turn. The pair is targeting 1.187 this morning. We note that gold prices were constrained during yesterday's US trading session by a rise in the real yield on US 10y Treasuries. We also note that yesterday's US jobless claims data was fairly downbeat, and that US housing starts fell in August after several months on the rise, which weighed on the greenback, which is currently the strongest driving force for gold prices.After the disappointment provided by the August US retail sales data, today investors will focus on the September reading of the University of Michigan's consumer sentiment index. We think it could provide a slight surprise to the upside, thus creating headwinds for gold, which as we write is hovering above $1,950/oz. From a technical perspective, gold has the potential to consolidate within a $1,957-1,963/oz range today, although it is unlikely to gain further ground. If it does manage to reach these levels, there is a good chance that it would fail to hold there and fall back toward Thursday's low.