Commodities. Oil and Gold Daily - December 13, 2017

> Oil slides on profit taking and EIA's upward revision to US output projection. The front month Brent contract traded in the $65.2-65.8/bbl range early yesterday then started to slide on profit taking following the previous day's $2.5/bbl surge stemming from the outage of the Forties North Sea pipeline, which had been scheduled to supply 0.4 mln bpd this month. Shell and BP have shut down fields in response. Prior to the evening release of EIA's short-term energy report, the February contract had already lost almost $1.8/bbl, and the publication pushed it down by another $0.9/bbl to an intraday low of $63.1/bbl. It eventually settled at $63.34/bbl, $1.35/bbl below the previous settlement. As we expected, the EIA did upgraded its US oil production forecast for next year in light of the higher oil price environment and latest rig count increase. The agency was previously expecting a 0.72 mln bpd rise to 9.97 mln bpd, and it now anticipates growth of 0.78 mln bpd to a year average of 10.02 mln bpd. The divergence in US shale output estimates for next year presented to OPEC last month by the leading analytical agencies underscores the substantial level of unpredictability surrounding shale in the near term, with investors now paying increased attention to the EIA's estimates and revisions. Next year's US shale performance will underpin US inventory levels and be a major factor driving oil prices. The EIA has also revised its 2018 global demand growth projection down from 1.66 mln bpd to 1.62 mln bpd. This is still bullish given that OPEC sees global demand growth at 1.51 mln bpd next year, while the IEA sees it at 1.28 mln bpd (both project growth of 1.52 mln bpd this year). These figures could be updated this week as the OPEC monthly report is due today (at 14:00-15:00 Moscow time) and the IEA monthly report is due tomorrow (at 12:00 Moscow time). Energy Aspects sees demand growing by 1.54 mln bpd next year.
> API data supports oil prices; EIA inventory estimates eyed. Brent started to recover after the close, gaining $0.35/bbl following the release of the API inventory data. This brought the oil benchmark close to $64/bbl, where it remains this morning. The API's headline crude inventory figure was bullish, while the refined products numbers were bearish. US crude inventories shrank 7.4 mln bbl in the week to December 8 (the Bloomberg median consensus was for a 2.9 mln bbl drop) to 444.4 mln bbl (below the EIA's 448 mln bbl estimate from last week). The draw was driven by a 0.26 mln bpd fall in imports, to 7.3 mln bpd. Yet another large (this time a 2.7 mln bbl) draw at Cushing was again attributed to the disruption at the 0.59 mln bpd Keystone pipeline (which is still operating at reduced capacity). Gasoline stocks were up 2.3 mln bbl w-o-w (in line with expectations) while distillates were up 1.5 mln bbl (exceeding expectations by just 0.3 mln bbl).We think today's EIA data, due at 18:30 Moscow time, is likely to show a substantial crude inventory draw of no less than 4 mln bbl, which will be counterbalanced by stronger combined builds in gasoline and distillates, pressuring prices upon the release closer to $63/bbl. We do not expect any bearish surprises from the OPEC monthly report, so we expect Brent to remain near $64/bbl during the first half of the day.
> Gold remains near multi-month lows; Fed statement could spark a rebound. Gold traded in the $1,242-1,246/oz range early yesterday before starting to slide and almost broke below $1,236/oz, fueled by the gains in Treasury yields and the dollar. However, both started to ease later in the day, and gold quickly rebounded above $1,240/oz. This represented good news for gold bulls, as it showed that the metal is no longer insensitive to short-term downward shifts is the dollar and Treasury yields, as was apparent during the latest descent of almost $60/oz observed since late November. This morning, gold is still hovering above $1,240/oz, with all eyes today on the Fed rate decision at 22:00 Moscow time and Fed Chair Yellen's press conference, which starts at 22:30. Investors in gold will be particularly interested in the latter, as a rate hike is a foregone conclusion, with a 25 bp hike to 1.50% fully priced in. The US economy continues to grow moderately, but inflation remains stubbornly below 2%. Yellen has lately argued that inflation should pick up and eventually hit the Fed's 2% target. A less hawkish stance today would cause a rebound in gold, and we expect the press conference to reflect the ongoing hesitation over the "mystery" of low inflation. We also expect gold to rebound by up to $10/oz as a result. Market participants could be left doubting the previous guidance of three rate hikes next year, despite the Fed maintaining its three hike projection to leave a neutral platform for incoming Chair Powell. Gold is likely to be on the defensive ahead of the Fed meeting, with the dollar likely to gain upon the release of the November CPI at 16:30 Moscow time.