Commodities. Oil and Gold Daily - December 7, 2017

> Oil slides on gasoline and distillate builds reported by EIA. The front-month Brent contract was recovering early yesterday, making gains to reach an intraday high of $62.9/bbl, but it then slid to $62.2/bbl before the EIA report was released. This sparked a retreat toward $62.0/bbl and later, after that level was broken, all the way to an intraday low of $61.15/bbl. Brent ended the day at $61.22/bbl with losses of $1.64/bbl. The EIA reported a large 5.6 mln bbl decrease in crude stocks to 448 mln bbl, in line with the 5.5 mln bbl decrease reported by the API on Tuesday (compared with our expectation of a 3 mln bbl w-o-w draw and the median estimate in a Bloomberg survey of a 2.5 mln bbl draw), but this failed to excite the market. Brent managed to keep its head above $62/bbl for no more than an hour after the release. The refined products data (specifically gasoline) turned out to be very bearish, dragging sentiment and prices down. We expect Brent to hold in a range of $61-62/bbl for the rest of the day today.
The report showed a draw at Cushing for the fourth consecutive week, by a significant 2.7 mln bbl. That is attributable to the Keystone pipeline disruption, reflected in reduced imports from Canada (down by 0.5 mln bpd from early November). The headline crude stock draw was also a factor in a 0.2 mln bpd rise in refinery inputs to 17.2 mln, which in part led to bearish refined products data. Gasoline stocks surged by 6.78 mln bbl, as the market has not been able to absorb supply as demand is seasonally low (but also currently below its five-year average). A w-o-w decline in gasoline exports was another blow. Distillate stocks rose 1.67 mln bbl on a w-o-w drop in demand. Gasoline and distillate stocks thus increased by a combined 8.5 mln bbl w-o-w, versus the 5.6 mln bbl decrease in crude stocks. This, together with the high level of refinery runs (implying further refined product builds), is making investors' outlook more bearish going into year end. Given that hedge funds' long-to-short position ratio in crude (according to the latest CFTC report) is almost 10 to 1 (the widest such skew since February), they are now more than happy to take profits.
> Gold's stability proved short-lived and its decline resumed this morning. Gold was stuck at $1,265-1,270/oz for most of yesterday and shifted toward the lower end of this range late in the day, finishing just below $1,265/oz. It began to slide in the afternoon on a surge in the dollar, which has continued this morning. Overnight, Treasury yields bounced back from a three-day decline, adding to the pressure on gold, which was pushed as low as $1,256/oz and has been trading in a range of $1,255-1,260/oz this morning. We mentioned yesterday that gold had become very sensitive to the dollar's strength and that Treasury yields were prone to rebound with investors pricing in a Fed rate hike next week. The enthusiasm over US tax reform has not helped gold either, and Senate Republicans agreed overnight to begin negotiations on the legislation with the House of Representatives. This brings the likely growth-supportive changes to the tax law another step closer toward being signed into law. As our FX analysts noted, we have been in a quiet period for market-relevant news flow. This will continue today, before tomorrow's release of US jobs data. We think that gold is likely to remain in its $1,255-1,260/oz range for most of today's trading, drifting to the lower end of this corridor late in the day.