Commodities. Oil and Gold Daily - December 4, 2017

> Oil eases on rising US rig count, OPEC November estimates eyed. After hovering just below $63/bbl early on Friday, the front-month Brent February contract surged to a high of $64.3/bbl. It quickly gave back some of the gains, however, eventually settling at $63.72/bbl, $1.09/bbl above the previous settlement. This morning, it is hovering below $63.5/bbl, with the recent slide largely attributed to a two-unit w-o-w increase in the US oil rig count, as reported by Baker Hughes for the week to December 1. In our view, market players have started to pay more attention to US rig numbers, which are viewed as an early indicator of US oil production, in order to gauge the response of US shale to the currently high prices. We consider a renewed surge in capital spending likely, which could drive the rig count and production growth higher than what is projected by the major analytical agencies. A rapid surge in production is a possibility, given the large number of drilled but uncompleted (DUC) wells. These can be brought online rather quickly if needed. The US tight oil production outlook received a lot of attention ahead of the recent OPEC+ meeting, as it remains the main threat to the rebalancing of the global oil market. The divergence in the estimates for US shale output next year presented to OPEC by top analysts underscore the high unpredictability of how shale will play out in the near term. Energy Aspects also recently noted that US hedging activity for next year nearly doubled in 3Q17 from 1H17, which underscores resolute intentions to increase output.
Today, market players are awaiting the first estimates of November production by OPEC countries, which Reuters and Bloomberg will report. Prices are likely to come under pressure following the reports, as we expect them to show weaker compliance with the production cut deal than in October, driven by higher m-o-m output in Iraq. Iraq managed to replace production lost in the north of the country (due to the Kurdistan situation) by increasing supplies from the south, which were up by 0.15 mln bpd m-o-m to 3.5 mln bpd in November. Lower output in the UAE, on the back of planned oilfield maintenance, will have failed to offset the extra Iraqi output, in our view. Prices could dip closer to $63/bbl later today.
> Gold eases from Friday's highs on US political developments. Gold traded above $1,275/oz for most of Friday before surging to $1,289/oz following a drop in the dollar. It then began to retreat, ending the week near $1,280/oz. This morning, gold is trading in the middle of a $1,270-1,275/oz corridor amid a stronger dollar. As we expected, the spotlight on Friday was on US tax reform. The Senate narrowly passed its tax bill. Now the Senate and House bills need to be reconciled (the aim is to do this before year end). This is fundamentally bearish for gold, as it bodes well for the dollar. The reforms also have the potential to stimulate faster economic growth in the US. However, elevated political uncertainty in the US following former Trump national security advisor Michael Flynn's plea deal has provided some support for gold. We think that the developments surrounding the US tax bill, Trump's first major legislative win, will gain the upper hand today, driving gold below $1,270/oz later on.