Commodities. Oil and Gold Daily - December 12, 2017

> Oil prices surge on Forties North Sea pipeline outage. Brent was stuck above $63/bbl early yesterday before breaking above $64/bbl later and settling at $64.69/bbl, up $1.29/bbl over the session. The rally has continued this morning as Asia has started to digest the news, and the front-month contract is trading above $65/bbl. Prices started to climb yesterday on news that the entire 0.45 mln bpd Forties Pipeline System (FPS) has been completely shut down for the first time since 2011 as a crack has been discovered in the system. A leak was detected on December 7 that reduced pressure in the system. When exactly the pipeline will resume operations is unclear, leaving the market guessing over the length of the outage. The crack has been located in the onshore section, which leaves hope for a quicker repair. We assume it will take around two weeks.
Forties is the largest of the five North Sea crude oil streams that underpin the dated Brent price benchmark, and it exports around 0.4 mln bpd to Asia, so Asian buyers are now being busy searching for alternative sources of supply. The most obvious source is US crude: the WTI discount to Brent moved back out to $7/bbl yesterday following the surge in Brent (crude is the one last category that remains in large surplus in the US). Saudi Arabia had hiked its January prices for Asia prior to the FPS shutdown, and its crude has become less competitive compared with WTI on the Asian market in the wake of the closure. This is therefore a bullish story for WTI, but more long term. US exports are likely to surge in January on the wider Brent-WTI spread, weakening the extent of the 1Q18 stock build in the US or maybe even flipping the US crude balance to into drawdown mode. This is a very strong bullish and fundamental market change that in our view puts a floor under Brent at around $58/bbl in what had been expected to be a weak1Q18.
Today, the EIA will release its short-term energy report at 20:00 Moscow time, with the agency likely to raise its US production growth forecast for 2018 from 0.72 mln bpd on higher oil price environment and latest rig count increase. Today, we expect Brent to break above $66/bbl and then ease later in the day following the EIA report and even further, closer to $65/bbl, following the overnight API inventory data numbers.
> Gold prices searching for a floor ahead of Fed meeting. Gold climbed above $1,250/oz early yesterday before sliding to as low as $1,241/oz on a stronger dollar and Treasury yields. This morning, gold has pared back some of those losses and to stand at $1,246/oz. Yesterday was uneventful, so we attribute the decline to traders positioning themselves ahead of tomorrow's Fed rate hike decision. Today, investors await US data, including NFIB sentiment (14:00 Moscow time) and PPI (16:30). The more important CPI data arrives tomorrow. Our FX analysts expect the data to have little impact on the dollar and see it trading flat heading into the Fed meeting. We doubt that gold will break below $1,240/oz today, so we see it trading at the upper end of the $1,240-1.245/oz range for most of the day.