Commodities. Oil and Gold Daily - August 2, 2017

> Prices fall as compliance on OPEC deal continues to falter. Early in the day yesterday, Brent for October delivery rose to as high as $52.93/bbl, falling just short of breaking the key $53/bbl resistance level. It then slid midday all the way to an intraday low of $50.92/bbl before recovering to settle at $51.78/bbl, for a $0.87/bbl loss on the day. Yesterday, Bloomberg published its estimate of OPEC oil production in July, which was based on a survey of analysts, oil companies and ship-tracking data. It fell largely in line with the estimates that Petro Logistics and Reuters had already put out (which we have written about in previous daily reports): total output, driven by increased output in Libya and the UAE, was predicted to rise 0.21 mln bpd m-o-m to 32.87 mln bpd (below the 33.00 mln bpd Reuters estimate for July, which was up 0.1 from its own revised June figure). The Bloomberg numbers did not show weaker m-o-m compliance across the board, but the other sources have, so the market will continue to view this as a growing problem.
> API reports US inventory build, delivering another blow. After settlement, Brent fell to $51.23/bbl on the weekly API data release and it was trading below $51.5/bbl this morning. The data showed that US crude stocks had increased 1.8 mln bbl to 488.8 mln bbl in the week to July 28, compared with the Bloomberg median estimate of a 3.1 mln bbl decline, and up by 5.4 mln bbl from the EIA's estimate last week. This was driven by imports, which increased a significant 0.83 mln bpd to 8.3 mln bpd, offsetting a rise in refinery runs of 0.142 mln bpd. Refined product inventory data, on the other hand, was bullish. Gasoline stocks, as expected, fell 4.8 mln bbl, compared with the Bloomberg median estimate of a 1 mln bbl decrease. Distillate inventories fell 1.2 mln bbl, versus the Bloomberg median estimate of a 0.9 mln bbl decrease. The EIA's inventory report for last week is due today at 17:30 Moscow time. In our view, it is more likely to push Brent close to $51/bbl today than to cause a price uptick, as the strong imports reported by the API will be reflected in the EIA data, as well, keeping stocks from falling sharply. At best, we expect the data to show a 1 mln bbl decline w-o-w, and we remain firm in our view that, given the $5/bbl gain in Brent in late July, the market is exposed to a potential price correction on the back of profit-taking.
> Gold fails to hold above $1,270/oz. Yesterday gold managed to break above $1,270/oz and came very close to the $1,274/oz mark following the release of weak US economic data, which drove Treasury yields lower and fueled demand for safe-haven assets. This morning, however, gold has fallen back into its previous $1,265-1,270/oz range and is currently treading water near $1,267/oz. Yesterday's data from the US showed a decline in factory activity and motor vehicle sales in July, while consumer spending barely increased in June. This all suggests that the initial 2Q17 GDP growth estimate of 2.6% may be due for a downward revision. The core PCE price index, the Fed's preferred inflation measure, came in at just 1.5% y-o-y for the month of June (unchanged from May), still well below the regulator's 2% inflation target. With yesterday's data points, which demand caution from the Fed, the chances of another rate hike this year have declined significantly. This is a bullish development for the safe-haven gold. In our view, given the elevated level of global geopolitical uncertainty, it should be able to settle above $1,270/oz later in the week.