Commodities Daily - September 30, 2021

> Oil prices stabilize despite downbeat EIA inventory report. This morning, Brent is trading near $78.5/bbl. Today, investors will eye the monthly EIA 914 oil production report, UK 2Q21 GDP data, a third print of US 2Q21 GDP and the testimony of Fed Chairman Powell and Treasury Secretary Yellen with regard to the CARES Act on Capitol Hill. In our view, the current Brent contract is most likely to expire below $79/bbl as sentiment remains fragile following the strong stock market correction this week and recent downbeat inventory data.> Gold declines amid dollar strength. Gold eased from $1,735/oz to just below the $1,730/oz mark yesterday, while EUR/USD retreated from 1.169 to 1.160. Gold is trading near $1,730/oz as we write. Today, the market awaits Fed Chair Jerome Powell's testimony in the US Congress, the Chicago PMI for September, US weekly initial jobless claims and eurozone unemployment for August. We expect bullion to retest recent lows at $1,725/oz today.> Metals lower, investors assessing China's mixed PMI data. Base metals traded lower fueled by investors' concerns over Chinese power crisis and property market turmoil. Chinese PMIs proved mixed, with the official one falling below 50 for the first time since the pandemic outbreak, reflecting the nation's crisis.OIL PRICES STABILIZE DESPITE DOWNBEAT EIA INVENTORY REPORTYesterday, after dipping from $78.4/bbl to as low as $77.5/bbl (extending the correction from YTD highs that had started on Tuesday), Brent began to trend higher and peaked at $79.4/bbl despite a downbeat EIA inventory report, which showed strong crude oil and total refined product stock builds. It eventually settled at $78.6/bbl. Inventories of crude oil rose for the first time in eight weeks amid higher production and imports, as well as stable refinery runs nationwide. Inventories rose 4.58 mln bbl w-o-w, in line with what the market had expected, while production rose by 0.50 mln bpd as operators in the Gulf of Mexico continued to ramp up following Hurricane Ida. US refinery runs were little changed, with Gulf Coast refiners still on the mend following Ida. Gasoline and distillates stocks rose slightly (+0.19 mln bpd and +0.38 mln bpd w-o-w, respectively), while propane and "other oils" inventories swelled, which led to a massive 10.90 mln bbl total stockpile build (including oil and all refined products). The rolling four-week average of gasoline demand, meanwhile, fell for the third straight week to 9.20 mln bpd. Gasoline demand is waning, though that comes as expected with the end of the summer driving season. The latter also explains why jet fuel demand has declined - demand is the weakest since 2014 (not including last year). That said, the outlook is bright after the US announced plans to ease travel bans with regard to several countries starting in November. Distillates demand on a rolling four-week-average basis is the highest since 2017 as the economy rebounds from the pandemic and Americans rely more on online shopping.This morning, Brent is trading near $78.5/bbl and today investors will eye the monthly EIA 914 oil production report, UK 2Q21 GDP data, a third print of US 2Q21 GDP and the testimony of Fed Chairman Powell and Treasury Secretary Yellen with regard to the CARES Act on Capitol Hill. In our view, the current Brent contract is most likely to expire below $79/bbl, as sentiment remains fragile following the strong stock market correction this week and recent downbeat inventory LD DECLINES AMID DOLLAR STRENGTH Gold fell from $1,735/oz to just below $1,730/oz yesterday, despite the US 10y Treasury yield easing from 1.55% to 1.53%. The pressure came from EUR/USD, which dropped from 1.169 to 1.160. Yesterday's data releases were mixed for gold. It rose following the publication of the eurozone economic confidence index for September, which came in at 117.8 points (117 consensus), while the industrial confidence index rose to 14.1 points, above the 12.6 consensus. All of this indicated a modest improvement in the eurozone economy and helped gold to climb to as high as $1,745/oz. However, US pending home sales for August rose 8.1%, well above the consensus forecast of 1.4%, adding to the upbeat housing market picture over the past month and strengthening concerns that the Fed will tighten policy sooner rather than later. At yesterday's ECB forum, Fed Chair Jerome Powell reiterated that the uptick in inflation will be temporary and is causing supply-chain disruptions, but he said he didn't know how large the effect would be or how long it would last. Gold slid below 1,730/oz by the end of the day, despite support coming from the US Senate reaching a deal to avoid a government shutdown.Gold is trading at $1,730/oz as we write. Today, the market awaits Fed Chair Jerome Powell's testimony in the US Congress, the Chicago PMI for September, US weekly initial jobless claims and eurozone unemployment for August. We expect bullion to retest recent lows at $1,725/oz TALS LOWER, INVESTORS ASSESSING CHINA'S MIXED PMI DATABase metals traded lower yesterday. Three-month LME contracts on copper were down 1.07% (-$98 from the previous day's close) to settle at $9,159/tonne, aluminum edged down 1.00% (-$30) to $2,903/tonne, nickel was down 1.15% (-$213) $18,275/tonne, while zinc dropped 0.72% (-$22) to settle at $3,048/tonne.The negative dynamics in base metals continued, fueled by concerns over the Chinese power crunch and property market potential collapse. Three-month LME contracts on copper, lead and nickel are now flirting with their 200-day moving averages, levels that have proven supportive earlier this year. Although aluminum is moving in line with the rest, it remains an outperformer, having added circa 50% YTD, versus the Bloomberg industrial metals index's 24% gain.Today, the Chinese September PMI data showed manufacturing dropping for the first time since February 2020, to 49.6 versus the consensus of 50.1, which was mostly due to Chinese power shortages that forced factories to scale back production. However, the Caixin gauge, which assesses the activity of smaller and export-oriented firms, delivered a surprise, coming in at 50 points, above the 49.5 expected. While base metals on the LME are in the black as of this writing, contracts in Shanghai are mostly negative following the mixed PMI data. We expect contracts on the LME to end up following the lead from Asia