Commodities. Oil and Gold Daily - December 14, 2017

> Oil falls on yesterday's mixed EIA inventory data; today's IEA report eyed. The front-month Brent contract was trading around $64/bbl early yesterday before starting to slide. It reached around $63.4/bbl prior to the release of EIA inventory data. The monthly OPEC report was released within this timeframe and included no changes to the 2017 and 2018 demand growth forecasts, which stand at 1.52 mln bpd and 1.51 mln bpd, respectively. However, OPEC did raise its 2018 US production growth estimate by 0.18 mln bpd, from 0.87 mln bpd to 1.05 mln bpd (we note that the EIA anticipates growth of 0.78 mln bpd in 2018, to an average of 10.02 mln bpd). November OPEC production fell 0.13 mln bpd to 32.45 mln bpd, which failed to excite the markets, as the estimate was very close to the 32.48 mln bpd reported by Reuters and 32.47 mln bpd reported by Bloomberg earlier this month.
The release of the EIA inventory report caused Brent to retreat to $63.0/bbl, and then all the way to an intraday low of $62.4/bbl. It ended the day at $62.44/bbl, $0.9/bbl below the previous settlement. The EIA reported a less bullish 5.1 mln bbl decrease in crude stocks (to 443 mln bbl) than the API's 7.4 mln bbl estimate from Tuesday, which sparked a surge in oil prices. US crude oil production, which has increased by 0.03 mln bpd w-o-w this year on average, last week surged 0.07 mln bpd to 9.78 mln bpd, fueling concerns that the higher oil prices have already resulted in a significant pickup in growth. Gasoline stockpiles rose 5.6 mln bbl over the week, which was a surprise to the downside, as the API had reported an increase of just 2.3 mln bbl, which was in line with market expectations. The latest strong build in gasoline stocks emphasized that demand has not kept up with the very high refining activity. Refinery inputs even edged lower last week to just below 17 mln bpd amid worsening economics for gasoline refining. Since rising production in the US has become more of a concern heading into year end, many hedge funds may be happy to take profits on their long oil positions, especially given the unusually high ratio of longs to shorts (the latest CFTC report showed the ratio at around 9 to 1, the highest since February).
At the moment, investors are digesting the IEA's monthly report, which was released at 12:00 Moscow time. The report appears mixed to us. One of the main bullish takeaways was a slight upward revision to the 2018 demand growth estimate from 1.28 mln bpd to 1.30 mln bpd, though the new forecast is still one of the most bearish out there. It also showed that OECD inventories had fallen to the lowest level since mid-2015: in October, the OECD inventory surplus (relative to the five-year average) shrank to just 111 mln bbl, from 136 mln bbl, as was estimated previously. The fact that the agency added 100 kbpd to its non-OPEC supply forecast for next year due to higher US production slightly took away from the bullish data. All in all, we expect Brent to break above $63/bbl later in the day and then hold slightly above this level.
> Gold prices surge after "dovish" Fed hike. After retreating from $1,245/oz to an intraday low of $1,240/oz early in the day yesterday, gold prices rebounded almost $7/oz on a weaker than expected US core CPI print, which showed that it had slowed 0.1 pp to 1.7% in November (versus 1.8% expected). That was once again below the Fed's inflation target of 2%, weakening the case for an aggressive approach to further policy tightening in 2018. Later in the day, the Fed raised rates by 25 bps to 1.50%, as expected, and the dollar came under pressure and gold prices surged another $10/oz (in line with our expectations outlined yesterday). It retained its three-hike forecast for next year, despite the subdued November inflation, leaving markets skeptical about its hawkishness. Ahead of the meeting, some had even expected the Fed to raise its forecast to four hikes. Now, the market is barely pricing in two moves, as our FX analysts noted today. They also note that the pressure on the dollar should decline on reports that Congress has agreed on a joint tax reform bill (with the corporate tax rate being cut from 35% to 21%), the vote on which will likely be held next week. Today, Norges Bank (12:00 Moscow time), the BoE (15:00) and the ECB (16:30) are all expected to announce decisions to keep their policies unaltered. We think gold will consolidate at the lower end of its current $1,255-1,260/oz range, with gains limited on profit taking after yesterday's surge.