Commodities Daily - September 21, 2020

> Oil rally ebbs due to fears of Libyan supply returning to market. Investors will have little economic data to digest today. The technical picture suggests that Brent is likely to fall into the $42.1-42.4/bbl range, which could be confirmed once it breaks the nearest support level at $42.6/bbl. Central to this downward shift will be a potential return of Libyan supply to the market and global equity markets heading lower amid a jump in coronavirus cases in Europe and a lack of further fiscal assistance. We consider the upside to be limited to the $43.4-43.8/bbl technical range.> Gold holding near $1,950/oz, may come under pressure this week. The macro calendar is light today, with just the Chicago Fed National Activity Index worth noting. The Fed chairman and US Treasury secretary are scheduled to speak to Congress Tuesday, Wednesday and Thursday. The IHS PMI data due Wednesday is, in our view, likely to highlight that US data has been coming out more upbeat than the numbers from the eurozone with a second wave of Covid-19 sweeping across Europe. This would likely provide tailwinds for the dollar, thus weighing on gold. Today, we expect gold to retest the $1,948/oz technical support level. If it falls through, this could trigger a drop to the $1,932-1,940/oz range later this week.OIL RALLY EBBS DUE TO FEARS OF LIBYAN SUPPLY RETURNING TO MARKETBrent peaked at $43.8/bbl on Friday morning and then retreated to as low as $42.5/bbl after Libyan military commander Khalifa Haftar (who controls most of eastern Libya) said he would allow crude production and exports to resume, ending his nine-month blockade of Libya's main oil terminals. Libya is currently producing less than 0.1 mln bpd, compared with 1.2 mln bpd last year. However, we do not believe that this means that Libya's National Oil Corporation will lift force majeure on oil and oil product exports anytime soon. The main reason for this is that Haftar's Western Libyan counterpart, Ahmad Maiteeq, the deputy prime minister in the Tripoli-based Government of National Accord, said a committee would be formed to ensure the fair distribution of oil revenues, but he lacks the authority among all Western Libyan factions to cut such a deal. This has caused anger in some quarters. Still, the deal deserves to be taken seriously as part of peace talks, given some level of support from Turkey and Russia. It will be important to watch for political fallout in coming days and weeks to assess whether this deal has any legs at all. Oil found slight support later in the day after Baker Hughes reported a one-unit decrease in the weekly active US oil rig count to 179, meaning that drilling activity has remained relatively steady since early July. Also playing in favor of bulls was a move in Brent's 3m time spread toward a $1.3/bbl contango from $1.8/bbl a week before, which suggests that concerns about oversupply are easing. Despite this, money managers have been cutting their bullish ICE Brent crude oil bets, with net-long positions being the least bullish in more than five months, according to the latest CFTC data. Today, investors will have little economic data to digest today. The technical picture suggests that Brent is likely to fall into the $42.1-42.4/bbl range, which could be confirmed once it breaks the nearest support level at $42.6/bbl. Central to this downward shift will be the potential return of Libyan supply to the market and global equity markets heading lower amid a jump in coronavirus cases in Europe and a lack of further fiscal assistance. We consider the upside to be limited to the $43.4-43.8/bbl technical range. This week, aside from the US inventory updates, oil investors will primarily be keeping an eye on assorted Chinese oil data.GOLD HOLDING NEAR $1,950/OZ, MAY COME UNDER PRESSURE THIS WEEKOn Friday, gold prices traded within a $1,945-1,960/oz corridor. They ended the topsy-turvy week near the $1,950/oz mark, drawing support from public health uncertainty and a lack of other investment opportunities with profitable yield potential. In the latest in the US-China trade war, the Trump administration over the weekend opted to avoid restrictions against TikTok following a proposal from Oracle and Wal-Mart to buy into the app's US operations. However, remarks from the companies involved and the administration appear to differ regarding the expected implementation, so this chapter of the US-China story is likely to remain on the radar and continue to support gold prices.The macro calendar is light today, with just the Chicago Fed National Activity Index worth noting. The Fed chairman and US Treasury secretary are scheduled to speak to Congress Tuesday, Wednesday and Thursday. Jerome Powell is likely to stick to his "whatever it takes" line and will probably reiterate the need for further fiscal stimulus. The IHS PMI data due Wednesday is, in our view, likely to highlight the fact that US data has been coming out more upbeat than the numbers from the eurozone with a second wave of Covid-19 sweeping across Europe. This would likely provide tailwinds for the dollar, thus weighing on gold. The US durable goods report for August later in the week will likely point to a continued recovery in investment given the limited inventory levels, which would also support the greenback. Likely simmering throughout the week will be the UK/EU post-Brexit trade negotiations, which have been further complicated by a British government proposal to empower unilateral changes to the deal. Covid-19 news is, of course, ever present, with headlines this morning focused on whether and how the UK will launch new restrictive measures. Today, we expect gold to retest the $1,948/oz technical support level. If it falls through, this could trigger a drop to the $1,932-1,940/oz range later this week.