Commodities Daily - September 28, 2020

> Oil prices hold steady ahead of a busy week. This week, the FT is hosting an online global commodities summit (through to Wednesday) featuring top executives from trading companies, and today's key speaker will be IEA Executive Director Fatih Birol. Today will be light on data, though later this week, aside from the usual updates from the EIA on US oil and refined products inventories, Reuters and Bloomberg will release their respective September production estimates for OPEC, which will likely spark fresh discussions over the levels of compliance with the OPEC+ deal. From a technical perspective, we think Brent is set to break support at $41.6/bbl today and fall to $41.1/bbl, while resistance is at $42.12/bbl.> Gold prices take breather after $100/oz correction last week. Events this week include the first US presidential debate, Chinese September PMIs, US August personal income data, the ISM US manufacturing PMI for September, and the ADP employment report and jobs reports for September. Thus, we expect elevated price volatility for gold this week. It seems gold has found support at the $1,855/oz mark. In our view, the downside this week runs to the $1,806/oz technical support level (the $1,835/oz resistance would have to be broken first), which could be tested if the coronavirus situation in Europe deteriorates significantly and the dollar in turn is boosted.OIL PRICES HOLD STEADY AHEAD OF A BUSY WEEKBrent peaked at $42.3/bbl on Friday before slipping to $41.5/bbl amid dollar headwinds and eventually closed at $41.92/bbl, $0.02/bbl below the previous settlement. EUR/USD plummeted to 1.1615, its lowest level since late July, with no signs that demand for safety is receding as France, Spain and the UK announced new restrictions. Another bearish factor at play was Baker Hughes reporting the addition of four active US rigs to a total of 183, despite regional production differentials in some basins recently falling back toward breakeven levels. In the US's largest Permian shale basin, initial shale well production can decline by as much as 50% in the first year. This means sustained drilling and completion activity are required just to maintain production let alone expand it, which is why US crude production has barely recovered a third of pre-corona levels and will need years to recover fully. We believe that oil prices have little room to grow in the fourth quarter as the global demand recovery is slowing due to new coronavirus-related restrictions, and as a result we expect US output to post small declines through the year-end and then to stage a recovery.This week, the FT is hosting an online global commodities summit (through to Wednesday) featuring top executives from trading companies. Today's key speaker will be IEA Executive Director Fatih Birol. The IEA recently reiterated its cautious outlook for oil demand until the end of this year as coronavirus infection rates look set to cause renewed restrictions. Today will be light on data, though later this week, aside from the usual updates from the EIA on US oil and refined products inventories, Reuters and Bloomberg will release their respective September production estimates for OPEC, which will likely spark fresh discussions over the levels of compliance with the OPEC+ curbs. Global market sentiment remains cautious ahead of a US presidential election debate scheduled for tomorrow, while the spike in new coronavirus cases is undermining hopes for a global economic recovery. Reuters recently asserted that a strong performance in Tuesday's debate by Joe Biden, the Democratic Party candidate and currently enjoying a modest lead in the polls, could boost stocks related to global trade and renewable energy, while a good performance by Trump could benefit fossil fuel and defense companies. From a technical perspective, we think Brent is set break support at $41.6/bbl today and fall to $41.1/bbl, while resistance is at $42.12/bbl.GOLD PRICES TAKE BREATHER AFTER $100/OZ CORRECTION LAST WEEKHaving traded sideways in a range of $1,865-1,875/oz until midday on Friday, gold prices then began to slide toward $1,855/oz on dollar momentum, but failed to break below this level. Bullion subsequently consolidated near the upper end of the $1,855-1,865/oz range. Besides buying on the dip, the modest rebound seemed to have few triggers. It was only after the close that US House Speaker Nancy Pelosi told reporters that negotiations with key Republicans over a new fiscal stimulus are continuing. (The effort to quickly confirm a new Supreme Court justice has led some to believe that Congress will still be able to pass a stimulus bill before the November election, though we think this may be a bit optimistic.)Events this week include the first US presidential debate, Chinese September PMIs, US August personal income data, the ISM US manufacturing PMI for September, and the ADP employment report and jobs reports for September. The market will continue following the US fiscal stimulus negotiations and talks between the UK and EU over trade relations post-Brexit. Thus, we expect elevated price volatility for gold this week. It seems gold has found support at the $1,855/oz mark. In our view, the downside this week runs to the $1,806/oz technical support level (the $1,835/oz support level would have to be broken first), which could be tested if the coronavirus situation in Europe deteriorates significantly and the dollar in turn is boosted.