Commodities Daily - September 8, 2020

> Oil prices stable for now, but face headwinds. Today, investors will eye the final print of the eurozone's 2Q20 GDP growth figure, as well as the August reading of the NFIB US small business optimism index. We believe the US data is likely to be upbeat and therefore support the dollar, which would exert pressure on oil prices, which already face headwinds from the latest souring in US-China relations and the lingering bitter aftertaste of Saudi Arabia's cuts to its oil prices over the weekend (for the October loading program), a sign that fuel demand is wavering. Furthermore, a volatile trading session can be expected today, as US investors are returning from the Labor Day holiday. Given today's backdrop, we think that Brent is likely to retest support at $41.6/bbl and possibly even the next support level of $40.7/bbl, as it has now twice failed to break above resistance at $42.5/bbl, suggesting that a rebound from the sharp correction late last week is not in the cards.> Gold drifts 0.2% higher to close at $1,934/oz on quiet news day. The PBoC's gold and FX reserves data released yesterday showed no change in its gold reserves as of the end of August. Eurozone 2Q20 GDP is due today, while the US markets will reopen after a public holiday. We expect gold to trade sideways at $1,920-1,940/oz.OIL PRICES STABLE FOR NOW, BUT FACE HEADWINDSAt the start of the day yesterday, front-month Brent slid to an intraday low of $41.5/bbl as investors digested the latest crude oil import data from China, which showed a 0.90 mln bpd m-o-m decline in August to 11.21 mln bpd. It is likely that China's actual purchases were lower than suggested by these figures, which we believe were distorted by a backlog of cargoes from July's record purchases that continued to be offloaded. In our view, China's crude imports will continue to fall m-o-m in September and October, even with Chinese majors ramping up their purchases of US crude in order to push forward with the implementation of the US-China trade deal. We note that China's majors have already cut back on their purchases of other spot crude, as domestic stockpiles remain quite high. However, strong Chinese refinery runs amid subdued imports in September and October will eventually free up more space for a pickup in imports in late 4Q20, which could be driven by a stronger yuan and deeper than expected cuts to Saudi Arabia's selling prices.Over the weekend, Saudi Arabia cut its official crude oil prices for October. It reduced prices for its key Arab Light grade for shipments to Asia (its main market) by more than expected and lowered its pricing for US buyers for the first time in six months. It also trimmed prices for lighter barrels shipped to northwest Europe and the Mediterranean region. This is a very negative sign for oil prices in general, as it indicates that the world's biggest exporter is experiencing wavering demand for its products amid continuing coronavirus flare-ups around the globe. Moreover, only four of 10 Asian refiners surveyed by Bloomberg said they would try to buy more Saudi Arabian crude after the kingdom cut its prices for October, as consumption remains below pre-pandemic levels. We would like to highlight that the uncertainty around demand is extremely high right now, and that refiners have often found themselves stuck with too much or too little crude on hand moving from one month to the next. All in all, end-user demand is on a gradual recovery path despite some pockets of severe weakness (i.e. India). In our view, the weakness in the refined product market has owed far more to oversupply and ample stocks than to low demand.Today, investors will eye the final print of the eurozone's 2Q20 GDP growth figure, as well as the August reading of the NFIB US small business optimism index, which incorporates a broad mix of views ranging from the construction industry to the services sector. We believe the US data is likely to be upbeat and therefore support the dollar, which would exert pressure on oil prices, which already face headwinds from the latest souring in US-China relations and the lingering bitter aftertaste of Saudi Arabia's cuts to its oil prices over the weekend (for the October loading program), a sign that fuel demand is wavering. Furthermore, a volatile trading session can be expected today, as US investors are returning from the Labor Day holiday. Given today's backdrop, we think that Brent is likely to retest support at $41.6/bbl and possibly even the next support level of $40.7/bbl, as it has now twice failed to break above resistance at $42.5/bbl, suggesting that a rebound from the sharp correction late last week is not in the LD DRIFTS 0.2% HIGHER TO CLOSE AT $1,934/OZ ON QUIET NEWS DAYYesterday, the gold market was awaiting the PBoC's gold reserves data for August, which turned out to be flat m-o-m at 62.64 moz (1,948 tonnes), meaning that the bank has not purchased gold since the end of 2019. Other central banks are also pursuing a cautious buying strategy. According to the WGC, eight central banks reduced their gold holdings in July, while seven (including the central banks of Turkey, Qatar and Kazakhstan) were still buying. Given the elevated gold price, regulators are very sensitive to reserves revaluations. For example, the Philippines central bank has announced it will reduce the share of gold in its reserves from 12.8% to 9.8%.Eurozone 2Q20 GDP is due today, while the US markets will reopen after a public holiday. We expect gold to trade sideways at $1,920-1,940/