Commodities Daily - September 30, 2020

> Oil slides as top traders express demand concerns; EIA data eyed. In light of last night's API inventory data, we expect today's EIA numbers to show very little change in US crude oil inventories or possibly even a very small draw. The main focus is likely to be on the refined product figures, which are expected to be slightly upbeat. Yesterday's correction in the oil market has sent Brent to the $39.8/bbl technical support level, but we think a slightly bullish EIA report and upbeat economic data could push it to a test of $41.2/bbl later today, with a break above leading to a further advance, possibly to as high as $41.5/bbl.> Gold falls short of $1,900/oz; US presidential debate fallout, ADP report eyed today. Today, investors will be eyeing the ADP's September US employment report ahead of Friday's official jobs report. The correlation between the ADP private payrolls change and the official NFP change has fallen sharply since April - today, we expect a modest m-o-m expansion in ADP payrolls. This could be sufficient for gold to break through resistance at $1,896/oz, which it failed to do yesterday, with the next resistance level at $1,911/oz.OIL SLIDES AS TOP TRADERS EXPRESS DEMAND CONCERNS; EIA DATA EYEDAfter trading within the $42.0-42.5/bbl range early yesterday, front-month Brent began to slide toward $40.5/bbl, eventually settling at $41.03/bbl, fixing $1.4/bbl below the previous settlement. The December Brent contract, which becomes the front-month gauge tomorrow, settled at $41.56/bbl, $1.31/bbl below the previous settlement price. Oil prices were falling yesterday despite further dollar weakness and amid sideways trading in stock markets, implying that the correction was driven by fundamental oil market factors. The main source of pressure was downbeat comments at the FT conference yesterday from executives of some of the world's biggest oil traders. Most of them expect the recovery in oil demand to be rather tepid. For example, the CEO of Vitol Group noted that daily consumption is still 4-5 mln bpd below where it was expected to be before the pandemic and that he does not expect a meaningful pickup in demand until at least the summer of 2021. Mercuria's chief executive said that it could take about 18 months for oil consumption to rebound from the coronavirus, while his counterpart at Gunvor and hedge fund manager Pierre Andurand both saw the time frame for this at closer to two years, with both also highlighting that there is about 12 mln bpd of spare production capacity even after the US shale production shut-downs.Overnight, API reported that US crude stocks fell 0.83 mln bbl to 494.4 mln bbl last week (the EIA's latest crude stock estimate was also 494.4 mln bbl). The drawdown came amid a 0.08 mln bpd drop in imports and a 0.37 mln bpd drop in refinery runs. Crude stocks at Cushing rose 1.6 mln bbl. The refined product data was mixed, showing a 1.6 mln bbl build in gasoline stocks and a 3.4 mln bbl decrease in distillate stocks. The EIA inventory data is due today at 17:30 Moscow time. The Bloomberg consensus is for a 1.0 mln bbl crude stock build, a 1.4 mln bbl decrease in gasoline stocks and a 1.2 mln bbl rise in distillate stocks.This morning, investors are digesting rather upbeat Chinese September PMIs from the National Bureau of Statistics, which showed activity continuing to pick up in both the services and manufacturing sectors. China's Caixin manufacturing PMI, meanwhile, fell by just 0.1 points, from 53.1 in August to 53.0 in September, which was only slightly below the consensus. Today, in the run-up to the EIA inventory report, investors will be digesting ADP's September US employment report, the third print of 2Q20 US GDP and US pending home sales for August. In light of last night's API inventory data, we expect the EIA data to show very little change in US crude oil inventories or possibly even a very small draw. The main focus is likely to be on the refined product figures, which are expected to be slightly upbeat. Data from GasBuddy indicates that US gasoline demand fell nearly 0.9% in the week ending September 26. Yesterday's correction has sent Brent to the $39.8/bbl technical support level, but we think a slightly bullish EIA report and upbeat economic data could push it to a test of $41.2/bbl later today, with a break above leading to a further advance, possibly to as high as $41.5/bbl.GOLD FALLS SHORT OF $1,900/OZ; US PRESIDENTIAL DEBATE FALLOUT, ADP REPORT EYED TODAYHaving traded around the $1,885/oz mark during the first half of the day yesterday, gold prices then began to rise toward $1,900/oz amid further dollar weakness and a drop in real 10y US Treasury yields. EUR/USD surged to 1.1745, its highest level in a week, as risk appetite improved. Drivers included the eurozone economic sentiment indicator, which improved to 91.1 in September from 87.5 in August, while fresh signs of progress toward passage of a new US fiscal package emerged, with Speaker Nancy Pelosi moving the House closer to a vote on a Democrat stimulus proposal, even as she and Treasury Secretary Steven Mnuchin continue talks to reach a compromise deal before the election. According to Pelosi's spokesman, the two will meet again today.This morning, however, the positive sentiment is fading amid the fallout from the first US presidential debate, in which President Trump said that the election result might not be known for months. We believe that any protracted post-election uncertainty is likely to be negative for the US and global economy. As for gold, it has retreated back toward $1,885/oz as we write this morning. Today, investors will be eyeing the ADP's September US employment report ahead of Friday's official jobs report. The correlation between the ADP private payrolls change and the official NFP change has fallen sharply since April - today, we expect a modest m-o-m expansion in ADP payrolls. This could be sufficient for gold to break through resistance at $1,896/oz, which it failed to do yesterday, with the next resistance level at $1,911/oz.