Commodities. Oil and Gold Daily - August 17, 2017

> Despite large draw in crude stocks, Brent slides as gasoline stocks disappoint. Brent for October delivery was trading at above $51/bbl during the first half of the day yesterday but failed to hold on to this level after the EIA weekly inventory report was released. Following the release, it dipped below $51/bbl and eventually settled at $50.27/bbl, down $0.53/bbl on the day. The EIA reported an 8.94 mln bbl draw in US crude inventories to 466.5 mln bbl in the week to August 11, much larger than the Bloomberg median estimate of a 3.3 mln bbl decline and a bit smaller than the 9.2 mln bbl decline, to 469.2 mln bbl, reported by the API the day before. This means that the gap between the two measures fell to 2.7 mln bbl. The draw was mostly attributable to a 0.17 mln bpd increase in exports, to 0.87 mln bpd, as well as to a still-strong domestic refining rate, which, albeit unchanged on a weekly basis (17.57 mln bpd), kept crude consumption near record highs. US crude production edged up by 0.079 mln bpd to 9.5 mln bpd. Imports increased significantly w-o-w, by 0.36 mln bpd to 8.1 mln bpd (still lower y-o-y), driven by increased volumes from Saudi Arabia and Iraq (their combined volume was still significantly lower than where it had been at end July). Our take is that the oil market, in line with seasonal trends, is definitely tight at the moment, which is keeping Brent above $50/bbl. Peak season is likely to last until seasonal maintenance begins in September.
As we had feared, the gasoline stock data brought bad news for oil bulls, keeping Brent from a potential rise to $52/bbl on the crude data. After rising in the week to August 4 by 3.4 mln bbl, gasoline stocks were up again, but this time by a very slight 0.02 mln bbl, compared with the Bloomberg median estimate of a 0.9 mln bbl decline and the 0.3 mln bbl increase reported by the API the day before. Gasoline imports eased w-o-w to 0.67 mln bpd from the 1.1 mln bpd seen the week before, which had marked a six-year high. This, however, was not enough to reduce stocks, as gasoline demand fell by a significant 0.27 mln bpd to 9.52 mln bpd, which implies that the summer period when Americans drive more is coming to an end. Falling distillates demand, by 0.29 mln bpd to 4.2 mln bpd, reinforces this view; distillate inventories increased by 0.7 mln bbl to 148.4 mln bbl. The main reason why the small weekly increases in refined product stocks (especially gasoline) were able to offset the big decrease in oil stocks is this: all of the crude draws we have seen since April have been due to record-high refinery runs, so, if refined product stocks do not decrease in line with crude stocks, this means that decreases in crude stocks cannot be sustained. We think that the weakening gasoline market will limit the prices increases in August and the first half of September that could have been realized thanks to the tight crude market. We expect Brent to retreat below $50/bbl in late September.
> Gold recovers lost ground on dovish Fed minutes. Gold traded near $1,270/oz for most of the day yesterday as investors awaited the release of the Fed minutes. Once the minutes came out, gold prices began to surge. The yellow metal recovered nearly all of its losses from earlier in the week yesterday and this morning was knocking on the door of resistance at $1,290/oz, a level last seen late last week, when tensions between North Korea and the US peaked. The minutes from the July Fed meeting, where rates were left unchanged, revealed a strong divide among Fed officials. The hawks were eager to hike rates in light of the strong labor market, while the doves did not see a hike as necessary given that inflation remains well below the 2% target (core PCE last printed at 1.5% y-o-y). Market players were left with an understanding that interest rates will not be raised until inflation picks up. Even though the possibility of balance sheet tapering in September remains strong, this was not enough to prevent Treasuries and the dollar from retreating, which provided a boost for haven assets. While we expect the dollar to further weaken today (see today's Russia FX Beat for more), in our view, a jump in the gold price to $1,300/oz is not in the cards given the sharpness and magnitude of the gains we saw late yesterday and early today.