Commodities. Oil and Gold Daily - November 27, 2017

> Oil prices steady ahead of OPEC meeting. After trading around $63.4/bbl early on Friday, the front-month Brent contract made gains to approach $63.8/bbl. A couple of times it fell back to $63.4/bbl but eventually settled at $63.86/bbl, up $0.31/bbl on the day. This morning, Brent has begun a fourth consecutive session in the $63-64/bbl range, each day having slowly moved toward the upper end of that corridor. The OPEC meeting on Thursday is the key event this week. Some clarity on what to expect will come a day earlier at the OPEC Joint Ministerial Monitoring Committee meeting, with recommendations likely to be made to the main OPEC board for the meeting on Thursday.
We think that market players have already priced in an extension, but how long OPEC will actually extend the deal is still being debated. We saw evidence that an extension was already priced in in the muted price reaction to Russian Energy Minister Alexander Novak's positive comment on Friday that just half of the global surplus had been removed and that an extension enjoyed broad support with the goal still to reach the targets initially set out. Russia has lately not shown clear support for an extension through 2018, unlike Saudi Arabia. If an extension had not been priced in, then Novak's comments would have triggered a rally. In addition, Novak was keen to point out that different options were still under consideration, which, in our view, leaves the potential downside risk to prices wide open. We think that Novak meant that the deal could be extended for a shorter time than until end 2018 - possibly for another quarter with the option to extend it once again at the OPEC meeting in May. In that case, a sharp retreat in Brent is likely, as hedge funds have been bullish on oil lately, creating an overhang of long positions that exposes prices to a sharp correction. OPEC delegates are expected to start arriving in Vienna today, and more clarity is expected to come as we near the meeting. For today, we doubt that Brent will escape from its recent $63-64/bbl range.
> Gold prices remain elevated. After beginning to ease from the $1,293/oz reached early on Friday, gold found support at $1,287/oz and bounced back to $1,290/oz, where it is still trading this morning. We note that the yellow metal managed to break above $1,285/oz last Wednesday and has traded higher than this level since. This week, comments from Fed officials will receive extra attention with the December Fed meeting looming. Most investors still expect rates to be hiked for the third time this year. Tomorrow, all eyes will be on Fed Chair nominee Jerome Powell, who will appear in front of the US Senate's banking committee for a confirmation hearing. Outgoing Chair Janet Yellen will deliver semiannual testimony to Congress on Wednesday, focusing on monetary and fiscal policy. US tax reform developments are likely to drive the markets later in the week, with a vote on the Senate tax bill set to take place soon. Today, however, should be relatively quiet. We expect gold to remain range-bound at $1,290-1,295/oz for most of the day.