Commodities. Oil and Gold Daily - August 10, 2017

> Brent surges to $53/bbl on oil stock draw, but rise in gasoline inventories is troubling. The Brent October contract moved slightly below $52/bbl yesterday morning but gained some strength ahead of the EIA report, reaching $52.5/bbl. Following the report, the price dipped back close to $52/bbl for a short time but eventually settled at $52.7/bbl, up $0.56/bbl on the day. The EIA reported a 6.45 mln bbl draw in US crude inventories to 475.4 mln bbl in the week to August 4, much larger than the Bloomberg consensus forecast of a 2.2 mln bbl decline, but smaller than the 7.8 mln bbl decline to 478.4 mln bbl reported by the API the day before, taking the gap between the two to 3 mln bbl. The main contribution to the drawdown came from a strong 0.5 mln bpd drop in imports, driven by declining volumes from Saudi Arabia and Iraq. The crude drawdown was also helped by an increase in domestic refining inputs to a record high 17.57 mln bpd, which was driven by robust demand for refined products, with peak season likely to last for the rest of the summer until seasonal maintenance begins in the autumn. US domestic crude oil production edged down by 0.007 mln bpd to 9.423 mln bpd due to seasonal maintenance in Alaska. Exports remained almost flat w-o-w at 0.7 mln bpd. In summary, we can confidently state that the oil market is currently tight, in line with seasonal trends. This is best indicated by the front and second-month Brent calendar spread strengthening by enough following the EIA data to result in a prompt market backwardation. This is also the main reason why the front month contract eventually broke the long-battled $53/bbl resistance level this morning. The monthly OPEC report is scheduled at 13:00-14:00 today, while the monthly IEA report is due at 11:00 tomorrow. Both will show rising OPEC production in July, and even though this is now a well-established fact, it could still pressure prices later in the week.
As we feared, the gasoline market data provided an unwanted surprise for oil bulls, troubling Brent's ascent to $53/bbl. After falling for seven weeks in a row, gasoline inventories expanded by 3.4 mln bbl w-o-w, compared with the Bloomberg median estimate of a 1.5 mln bbl decline and the 1.5 mln bbl increase reported by the API the day before. At 9.76 mln bpd, gasoline demand is near a record high and surpassed refinery runs (which are also at a record high) for a seventh week in a row from mid-June to end July, resulting in the inventory draw. The tight US gasoline market and high margins have been noted globally and resulted in a surge in gasoline imports to the US in the latest reported week, which reached a six-year high and near double the volume we saw the week before. We think this spells trouble for the gasoline market in the months ahead, which will have a knock on effect on crude, complicating Brent's potential surge to $55/bbl.
> Gold prices continue to feed off geopolitical uncertainty. Gold continued to gain ground yesterday, rising almost $18/oz to $1,280/oz, while the dollar index and 10y US Treasury yields traded sideways. The latter clearly indicates that another factor is driving gold: the elevated tension between the US and North Korea. The uncertainty premium in gold has shot up way above our expectations and is currently at $25-30/oz, according to our calculations, exposing gold to a sharper correction on profit taking should the conflict start to cool or if the US initial jobless claims and PPI data due at 15:30 Moscow time today prove to be stronger than expected, combined with strong CPI data tomorrow. We therefore think a surge in the gold price to $1,290/oz is unlikely. We expect it to retreat closer to $1,275/oz level today and it could step down to the $1,270-1,275/oz range tomorrow.