Commodities. Oil and Gold Daily - December 22, 2017

> Oil prices likely to be pressured by return of Forties at the start of the 2018. Front-month Brent held at $64-65/bbl yesterday after breaking above $64/bbl on Wednesday following EIA inventory data. After hovering just above $64.2/bbl midday yesterday, the February contract started to surge and eventually settled at $64.9/bbl, up $0.34/bbl over the session. However, this morning oil prices are on the defensive, pressured by comments from Forties pipeline operator Ineos. The company said it should be able to return the pipeline to normal operations early next year. The 0.45 mln bpd pipeline had been scheduled to supply 0.4 mln bpd this month but has been completely offline for 12 days, with a subsequent declaration of force majeure being the first one for decades on the major North Sea stream. Oilfield operators including Shell and BP have shut fields in response as they have no storage available at the fields.
Ineos plans to complete repair works over Christmas, with a limited number of operators initially allowed to start supplying oil through the system at reduced rates. This implies that the pipeline will remain shut for two and a half weeks in total before restarting slowly. The pipeline will not operate at full capacity until the operator is entirely happy with the integrity of the system, with Energy Aspects estimating that reduced flow will last for at least a week. Brent surged $2.5/bbl and came just short of breaking above $66/bbl on December 11, when the pipeline was shut and the next day. However, it failed to hold that level as traders quickly switched to an alternative source of supply (Urals) in light of uncertainties associated with loading times and availability. The Russian grade has surged in Northwest Europe and as a result is trading almost at parity with Brent. Once the pipeline returns to full capacity, we would expect the Urals spread to Brent to come under pressure in Northwest Europe. Front-month Brent differentials that have also suffered from the availability of alternative supply are likely to ease early next year as well as the headline figure. Energy Aspects also notes that Forties will not flood the market once it comes online as only around 20 cargoes of Forties can be physically loaded in a given month (irrespective of how large a loading program is announced). We think Brent is likely to retreat toward $64/bbl later today if the Baker Hughes US rig count shows a weekly increase.
> Gold prices could ease prior to Christmas period. This morning, gold is enjoying its fourth consecutive session in the $1,260-1,270/oz range, having shifted closer to the $1,270/oz resistance level yesterday. This morning, it remains just below $1,270/oz on quiet year-end trading, with traders squaring their books prior to the Christmas period. However, we anticipate a decline below $1,265/oz as the dollar is strengthening this morning supported by a weaker euro following election results in Catalonia that showed independence parties winning a majority but not the popular vote. An anti-independence party won the biggest single share of the vote. We expect dollar support from a number of economic data releases. The PCE deflator (the Fed's preferred inflation measure) is due at 16:30 Moscow time. At 1.4% y-o-y, the core PCE is well below the Fed's 2% target. Durable goods orders are also due at the same time.