Commodities Daily - September 9, 2020

> Oil prices slide, attention turns to EIA monthly report, US inventory data. Today, investors will eye the EIA monthly oil market report and the API's weekly assessment of US oil and refined product inventories (delayed by one day due to the US holiday on Monday). In our view, the EIA is likely to maintain its upbeat outlook for the remainder of this year. This should provide some encouragement to oil investors who are staring at Asia's currently stalling demand recovery, the end of the US summer driving season and increased supply from OPEC+. The release of the API report overnight is likely to show inventory draws across all categories. Such an outcome would, at best, probably only temporarily halt the ongoing downturn in Brent amid the ongoing stock market drop. We think Brent could for a while hold in a narrow range of $39.4-40.1/bbl. However, given the current bearish backdrop, we see potential for Brent to resume its downtrend toward $37.5/bbl technical support later this week.> Negative sentiment in financial markets has so far exerted only short-term pressure on gold. Bullion edged down 0.1% yesterday to $1,932/oz. Today, we expect the dollar to continue firming ahead of tomorrow's ECB meeting. Investors will also be watching the public hearings of the US-China Economic and Security Review Commission. We expect gold to come under pressure this afternoon and test technical support at $1,907/oz.OIL PRICES SLIDE, ATTENTION TURNS TO EIA MONTHLY REPORT, US INVENTORY DATAAfter trading near $42/bbl at the start of the day yesterday, front-month Brent began to slide in a continuation of the downward momentum from last week, which it began at the $46/bbl mark. Having fallen to an intraday low of $39.3/bbl early in US trading hours, Brent began to consolidate and eventually settled at $39.78/bbl, fixing $2.23/bbl below the previous settlement. Apart from the downbeat fundamental factors that we described in yesterday's daily, prices are also getting hit by falling global risk appetite. The US returned from the long weekend with the S&P 500 dropping 2.8% - the index is now down 7% over the last three sessions - and the NASDAQ Composite plummeting 4.1%. The MSCI ACWI global index fell 2.0%. The tech sector again led the global selloff, while valuations were trimmed back from their highest levels in decades in some segments. While market participants hardly needed more reason to sell assets yesterday, headlines that AstraZeneca has paused a late-stage vaccine trial due to the illness of a patient also dampened hopes for a successful Covid-19 vaccine in the near term. This in particular had a strong negative impact on oil prices yesterday, as the pace of the oil demand recovery to pre-pandemic levels largely depends on a successful vaccine. Overall, oil demand clearly remains weak, particularly for some transportation fuels. Just how long transportation demand will take to recover to pre-pandemic levels will largely hinge on the viability of a vaccine and other treatment options. The lack of a vaccine is compelling many companies to keep employees working from home, which is compounding the demand losses due to high unemployment.Today, investors will eye the EIA monthly oil market report and the API's weekly assessment of US oil and refined product inventories (delayed by one day due to the US holiday on Monday). Last month, the EIA report was fairly upbeat (contrasting with the IEA and OPEC reports), suggesting that US crude oil production is set to fall more sharply y-o-y this year. The EIA also lifted its 2020 global demand forecast. In our view, the agency is likely to maintain its upbeat outlook for the remainder of this year. This should provide some encouragement to oil investors who are staring at Asia's currently stalling demand recovery, the end of the US summer driving season and increased supply from OPEC+. The release of the API report overnight is likely to show inventory draws across all categories. Such an outcome would, at best, probably only temporarily halt the ongoing downturn in Brent amid the ongoing stock market drop. We think Brent could for a while hold in a narrow range of $39.4-40.1/bbl. However, given the current bearish backdrop, we see potential for the benchmark to resume its downtrend toward $37.5/bbl technical support later this week. We also note that we see the upside potential for Brent as limited to $40.6/bbl (if $40.1/bbl resistance is broken first) GATIVE SENTIMENT IN FINANCIAL MARKETS HAS SO FAR EXERTED ONLY SHORT-TERM PRESSURE ON GOLDPolitical risks have been steadily rising since the beginning of September. Difficulties in the Brexit talks, Donald Trump's negative rhetoric toward China and the ongoing debate around the approval of a fiscal package in the US should at first glance be supporting safe-haven assets and boosting demand for gold among investors. However, gold has reacted moderately. Yesterday, it came under pressure at the opening in New York and at one point lost more than $25/oz, though it eventually closed only 0.1% lower on the day at $1,932/oz. Investor sentiment was tainted by the selloff in US equities (US indexes declined for a third day in a row) and dollar strengthening.Gold is consolidating around the $1,930/oz mark as we write. We expect the dollar to continue firming ahead of tomorrow's ECB meeting. Investors will also be watching the public hearings of the US-China Economic and Security Review Commission. We expect gold to come under pressure this afternoon and test technical support at $1,907/