Commodities. Oil and Gold Daily - December 5, 2017

> Oil slips on profit taking amid an OPEC production decrease. After hovering just below $63.5/bbl early in the day yesterday, Brent for February delivery started to slide and eventually settled at $62.45/bbl, down $1.28/bbl on the day. This morning, it has stabilized in a range of $62.0-62.5/bbl, with investors starting to price in a decline in US crude stocks (the median estimate of a Bloomberg survey sees a 2.5 mln bbl w-o-w decline) expected to be first seen in the new API report, due overnight at 00:30 Moscow time. In our view, a draw (crude is the last category of inventories that still has a large surplus in the US) would slightly offset the bearish effects of expected builds in gasoline and distillates, supporting Brent near $62.0/bbl. Product builds are likely on lower demand and high refinery runs.
Yesterday, prices failed to react positively to Reuters' estimate of a 0.3 mln bpd m-o-m decrease in OPEC production in November, a fundamental bullish development. We attribute this to profit taking. Note that the latest CFTC data shows that long positions held by hedge funds are now nearly 10 times the volume of short positions. An overhang of this scale was last seen back in February-March and led to a $5/bbl decline in Brent. We emphasize that the positioning implies a correction similar to the one we saw earlier this year in the absence of positive market developments. Returning to November OPEC production, Reuters estimated that it fell to 32.48 mln bpd (compared with the Bloomberg estimate of 32.47 mln bpd), but the m-o-m decrease was largely driven by field maintenance in Angola, with the other 13 cartel members either flat or reporting slight declines m-o-m (besides Iran, which saw a negligible 0.01 mln bpd increase). The recent surge in shipments from the south of Iraq failed to exceed the decline in those from the north, so we did not see an increase in Iraqi production, as we had expected. Still, if the overall m-o-m decrease is reflected in the OPEC and IEA monthly production reports, scheduled for release on December 13 and 14, respectively, this will support prices.
> Gold stable amid stronger dollar, weaker Treasury yields. Gold was trading in a narrow $1,272-1,277/oz range yesterday, pressured by the dollar, which continued to ride the momentum from Friday's US tax reform progress, and supported by a decline in Treasury yields on the latest development in the probe into Trump's presidential campaign, namely former national security advisor Michael Flynn's guilty plea. We suspect that investors' attention today will be temporarily diverted from tax reform to the US Supreme Court's decision to allow Trump's travel ban for citizens of six Muslim-majority countries to go into full effect. This is likely to generate some uncertainty, which could provide support for gold. Investors will also look out for US trade data at 16:30 Moscow time and the ISM nonmanufacturing survey at 18:00. This morning gold is trading around $1,275/oz. We expect it to stabilize in a $1,270-1,275/oz range.