Commodities Daily - September 28, 2021

> Oil prices keep rising, with Brent closing in on the $80/bbl mark. Today, investors will eye the annual OPEC World Oil Outlook report, which will contain data on the upstream, the downstream, supply and demand, along with a set of new projections. The September US consumer confidence reading and the API's weekly data on US oil and refined product inventories is also due today. In our view, Brent is likely to break above $80/bbl later today amid tailwinds from the US inventory data.> Gold remains range-bound ahead of Powell's testimony in Congress. Gold traded in a tight $1,750-1,760/oz range yesterday while the US 10y Treasury yield climbed from 1.45% to 1.49%. Bullion is trading near $1,745/oz as we write. Today, Fed Chair Jerome Powell will testify before Congress, and we will also see US wholesale inventories for August, the US Conference Board's consumer confidence index for September and the Case-Shiller home price index for July. We expect bullion to retest support at $1,740/oz today.> Metals lower overall yesterday but China's power crunch playing out differently for each metal. Base metals traded lower yesterday, as China announced a fourth release from metal reserves slated for October 9, while the power crunch currently afflicting the country is exacerbating the negative sentiment, though various metals are reacting differently to the electricity curbs.OIL PRICES KEEP RISING, WITH BRENT CLOSING IN ON THE $80/BBL MARKYesterday, Brent rose as much as $1.7/bbl to an intraday high of $79.9/bbl before slipping back to $79.3/bbl later in the day and then eventually settling at $79.38/bbl, $1.29/bbl above the previous settlement. The benchmark's continued advance owed to the substantial deficit in the market, with supply still lagging behind demand. We would like to note here that oil has not seen an uncontrolled speculative spike this year, unlike some other commodities such as natural gas, and that oil prices closely followed the improving market fundamentals in 2H20 and this year and have consistently been in line with the supply and demand situation. One major fundamental factor that has made the late 3Q21 rally in Brent toward $80/bbl possible is Hurricane Ida, which hit the US Gulf Coast in late August and will continue to weigh on refinery output into October and upstream crude oil production into 1Q22. Ultimately, we expect 50-55 mln bbl of refinery output and 55-60 mln bbl of crude oil production to have been lost.Another key fundamental catalyst has been natural gas prices, which have been high enough to encourage the power sector to switch from gas to liquids where possible. We, however, remain at the lower end of the analytical consensus and maintain that global oil demand is only likely to see a 0.5 mln bpd boost this winter from fuel switching. There are limits to switching, and we believe the more optimistic consensus forecasts for the impact on liquids demand (up to 1 mln bpd) would only prove correct if the winter is colder than average. We also note that a big drop in gas prices, for example due to a warmer than usual winter, could lead to lower demand for liquids.In our recent daily and weekly reports, we have noted that Brent looked likely to move above $80/bbl in late September or early October. Brent has now finally broken above key technical levels, and given the strong fundamentals (and also likely solid Chinese purchases in 4Q21) we think it should be able to move beyond $80/bbl as well and then hold there in 4Q21, probably hovering within an $80-85/bbl range, unless the economic outlook sharply deteriorates. Our new baseline forecast for the average Brent price in 4Q21 is $83/bbl, which was the optimistic forecast from the set of projections we published back in 1Q21. We will discuss the outlook for the oil market in greater detail in our forthcoming quarterly Multi-Asset Sputnik report. As for today, investors will eye the annual OPEC World Oil Outlook report, which will contain data on the upstream, the downstream, supply and demand, along with a set of new projections. The September US consumer confidence reading and the API's weekly data on US oil and refined product inventories is also due today. In our view, Brent is likely to break above $80/bbl later today amid tailwinds from the US inventory LD REMAINS RANGE-BOUND AHEAD OF POWELL'S TESTIMONY IN CONGRESS Gold traded in a tight $1,750-1,760/oz range yesterday while the US 10y Treasury yield rose from 1.45% to 1.49%. EUR/USD retreated from 1.172 to 1.170, pushing bullion lower. Risk-off sentiment in the Asian region helped gold in the early hours of trading, with China investors worried about the debt issues surrounding real estate developer Evergrande Group. However, US data pushed bullion back to $1,750/oz. US durable goods orders for August rose by 1.8%, significantly above the consensus forecast of 0.7% growth and the 0.1% decline registered in July. This demonstrated high purchasing power in the US (and was more or less in line with US retail sales for August) despite issues with the Delta variant spreading. This bolstered the view that the US economy is strong enough for the withdrawal of some stimulus measures, which generated negative sentiment for gold. However, the Dallas Fed manufacturing index for September came in at 4.6 points, the lowest reading in more than a year and below the consensus of 11 points, though this failed to boost gold.Bullion is trading near $1,745/oz as we write. Today, Fed Chair Jerome Powell will testify before Congress, and we will also see US wholesale inventories for August, the US Conference Board's consumer confidence index for September and the Case-Shiller home price index for July. ECB President Christine Lagarde is also due to give a speech today. We expect bullion to test support at $1,740/oz TALS LOWER OVERALL YESTERDAY BUT CHINA'S POWER CRUNCH PLAYING OUT DIFFERENTLY FOR EACH METALYesterday, base metals closed in the red. Three-month LME contracts on copper were almost flat at $9,351/tonne, aluminum edged down 0.78% (-$22 from the previous day's close) to settle at $2,904/tonne, nickel was down 1.68% (-$322) $18,893/tonne, while zinc dropped 0.61% (-$18) to settle at $3,094/tonne.Yesterday, Chinese authorities announced that a fourth release from the country's strategic metal reserves would be made on October 9 (70 kt of aluminum, 50 kt of zinc and 30 kt of copper). Although highly expected, the announcement pushed metals lower in the morning. During the day, meanwhile, negative momentum prevailed, as deepening power shortages in China continued to fuel concerns about the country's slowing economic growth. With several provinces dealing with blackouts and manufacturing hubs forced to reduce electricity consumption, demand for base metals is coming under pressure. Notably, although metals are all generally in the same boat, the power crunch is affecting each one differently. Aluminum, the production of which involves significant electricity use, is seeing upside potential as the power curbs are limiting supply. However, nickel, which is used in stainless steel production (around two thirds of nickel consumption comes from the stainless steel industry, which is mainly located in China), is facing headwinds. Given that China is aiming to limit steel output this year, we believe demand for nickel will remain under pressure. The three-month LME contract's recent slide below $18,000/tonne seems just the