Commodities. Oil and Gold Daily - August 28, 2017

> Oil prices steady; Hurricane Harvey in the spotlight. Brent for October delivery hovered above $52.4/bbl in the first half of Friday's trading before sliding to a low of $52/bbl. It eventually closed at $52.41/bbl, up $0.37/bbl on the day. This morning Brent started out at $52.8/bbl in Asia but has since fallen to just above $52.3/bbl. On Friday, we discussed the potential upstream and downstream impact of Hurricane Harvey. We had assumed the refining sector would be hit the hardest, pressuring crude consumption, and that this could actually pressure oil prices. It is still hard to get a sense of the full impact, and rain continues to fall along the Gulf Coast. The storm should remain close to the shore at least until Wednesday, and there is a chance that the flooding could reach all the way east to Louisiana. However, early indications of the impact have started to appear. Reuters estimates that around 0.68 mln bpd of crude production (7% of US production) has been shut down due to the hurricane, while more than 2 mln bpd of refining activity is currently offline (11.2% of the US total). The US government has not yet announced that it will release oil from the Strategic Petroleum Reserve, but this is always an option. We believe the downstream sector indeed suffered the heavier blow, meaning that prices could be pressured for weeks to come.
> Further supply disruptions in Libya providing support to oil. Until recently, Libyan crude production was running at nearly four times the year-ago level, at just over 1 mln bpd. The Sharara field had been the major source of that growth. This weekend, the pipeline taking oil from the field was reportedly once again blockaded by the Zintan Brigade, the same force that kept it closed from late 2014 to late 2016, and then a week ago for around three days. The supply disruption has spread to the large El Feel oilfield, which is connected to the same pipeline. This resulted in another force majeure being declared at the Zawiya oil export terminal. Libyan production was recently down to just 0.76 mln bpd. In our view, the El Feel shutdown may have brought output close to 0.64 mln bpd. The supply reduction is likely to keep front-month Brent above $52/bbl today. Then later in the week, when the full impact of Hurricane Harvey starts to come into focus, we may see Brent pressured below $52/bbl.
> Jackson Hole and NAFTA uncertainty support gold. On Friday, gold prices rose from $1,287/oz early in the day to a range of $1,290-1,295/oz on news from the Jackson Hole conference in general and Fed Chair Janet Yellen's remarks in particular. Markets had expected her to talk about policy, so her failure to do this fueled uncertainty over interest rates and US Treasury yields, and the DXY index declined midday. ECB President Mario Draghi later touched upon stronger global and European economic growth, providing support for the euro, which sent the DXY lower and further supported gold. On Sunday, it was once again US President Donald Trump who fueled uncertainty: he called NAFTA the "worst trade deal ever made" and hinted at the possibility of its termination. This is supporting gold this morning, which is trading above $1,295/oz. We think there is a good chance that prices will move within a $1,290-1,300/oz range until the middle of the week, when US GDP and core PCE data is due.