Commodities. Oil and Gold Daily - August 25, 2017

> Harvey may end up being more bearish than bullish for oil. Brent for October delivery was trading around $52.5/bbl during the first half of the day yesterday, but, after reaching an intraday high of $52.7/bbl, slid to an intraday low of $51.6/bbl midday. It eventually settled at $52.04/bbl, down $0.53/bbl on the day. The storm making its way through the Gulf of Mexico, named Harvey, has taken center stage and will continue to command the market's focus. It has developed very quickly and is expected to move ashore later today as the strongest hurricane in 12 years. Investors have been left to guess about which segment of the oil industry - upstream or downstream - will be hit harder. Gulf Coast drillers have already taken precautionary measures, shutting down operations and evacuating workers earlier this week. As of midday yesterday, according to official data, almost 10% of offshore production had been halted. But shale operations in Texas (the major contributor to US shale production growth) are also threatened as oil fields could be severely flooded. The future production growth that has strongly supported oil bears this year is under threat.
The storm, as well as the flooding that goes along with it, may be worse news for refiners. At the moment, it is set to make landfall south of Houston, where the nearby coastline is home to about 30% of US refining capacity. Depending on the storm's severity, it could take months for refining activity to recover to pre-storm levels. The downstream segment has already taken precautionary measures and evacuated workers. The disruption caused by Harvey could coincide with stoppages planned for seasonal maintenance in September, when peak motor fuel demand eases. Still, if the worst-case scenario materializes, the disruption may be a lot deeper than expected. This would be very bearish, since record-high refinery runs have been the major driver behind the strong draws of crude inventories since April. In our view, Brent will remain within a range of $52-53/bbl, shifting toward the upper end of that range on uncertainty today and then falling out of it, to below $52/bbl, on Monday as the storm's impact on crude consumption becomes clearer.
> Gold continues to drift sideways; Jackson Hole eyed. Yesterday, gold remained stuck within its recent $1,285-1,290/oz trading range, though it was drifting closer to the low end, pressured by a moderate rise in US Treasury yields throughout the day. All eyes today will be on Fed Chair Janet Yellen when she makes a speech in Jackson Hole at 17:00 Moscow time, and then on ECB President Mario Draghi when he speaks at 22:00. Both speeches could provide clues on monetary policy, and Draghi could shed some light on QE tapering in the EU. Since there is a chance that Yellen will reaffirm her expectation of another rate hike this year given the growth of the US economy (for more details, please see today's Russia FX Beat), we would like to note that gold could come under strong pressure, potentially dropping to $1,275-1,280/oz. As our rates team noted, Draghi's speech will be late in the day, so its impact will not be felt in markets until Monday.