Commodities. Oil and Gold Daily - August 31, 2017

> EIA data points to crude overstocking in weeks to come. Yesterday Brent for October delivery fell to $51.6/bbl prior to the EIA's weekly inventory report, and then continued its decline afterward, closing at $50.86/bbl, down $1.14/bbl on the day. The EIA reported a 5.4 mln bbl drop in US crude inventories, to 457.77 mln bbl, in the week to August 25. The draw exceeded Bloomberg's 1.75 mln bbl median estimate. As we mentioned yesterday, yesterday's EIA numbers were outdated in light of the damage from the hurricane. Next Wednesday's report will be extremely important, as it will provide insight on the impact of the storm. However, we would like to point out something that we think portends a looming inventory buildup in the US that could last for weeks (and also caused oil prices to fall yesterday). Refinery inputs stood at a record 17.7 mln bpd, up 0.26 mln bpd w-o-w. Increased refinery throughput has been a major factor behind the inventory draws since April, including last week's. At some point, support could come from imports, which dropped sharply last week thanks to Saudi Arabia and Iraq. This trend is likely to continue, as the Saudi energy minister previously promised lower exports in August, and the effects of this are lagging due to shipping time. Further support could come from a rumored downward revision to the EIA's US crude production estimate, which now stands at 9.53 mln bpd.
However, given that up to 4.4 mln bpd of US refining capacity is currently offline (up from 2 mln bpd earlier this week), we think there is no way the supporting factors mentioned above will make up for the decline in crude consumption from refiners and thus see little chance of headline inventory draws in September. As for refined products and gasoline, demand last week remained extremely high at 9.846 mln bpd, while exports were up for the third week in a row. Both of these factors allowed US refiners to run hard. The US market will start to take in more European gasoline given how high US margins have been. In previous commentary, we projected that Brent would retreat toward $51/bbl by the end of this week. It now looks like the oil benchmark may struggle to hold above key support at $50/bbl.
> Surging dollar pushes gold lower as geopolitics leaves center stage. After hovering just above $1,310/oz during the first half of the day yesterday, gold fell below this level later in the session and now remains stuck in a range of $1,300-1,310/oz, pressured by a strengthening dollar and supported by steady Treasury yields. An upward revision to the 2Q17 US GDP growth estimate to 3.0% (a 2.7% reading was expected) triggered a surge in the dollar yesterday. Meanwhile, gold has been seeing less support from geopolitical uncertainty. Yesterday the US defense secretary called for a diplomatic solution to the North Korea situation and downplayed President Donald Trump's "talking is not the answer" comment. Today a raft of key economic data from the US will take the spotlight. The highlight will be personal income and outlays (15:30 Moscow time), a report that will contain the core PCE price index, the Fed's favorite inflation gauge. We think the data is likely to surprise to the upside, pushing gold toward $1,300/oz.