Commodities. Oil and Gold Daily - February 2, 2018

> Oil gains on weaker dollar despite higher OPEC production in January. After beginning yesterday near $69/bbl, the front-month Brent contract surged to $69.5/bbl, before dipping to below $69/bbl. It then recovered to settle at $69.65/bbl, up $0.76/bbl on the day. It continued to climb post-settlement and this morning is hovering just below $70/bbl. After shifting higher following the EIA inventory data release on Wednesday, Brent was particularly sensitive to the DXY and EUR/USD yesterday. As we noted yesterday, the correlation between the oil benchmark and US dollar has notably increased after the latter slumped in mid-January. The correlation declined during the first half of this week as investors were at first pricing in an increase in US crude stocks (the first one since early November) and then reacted positively to the surprisingly strong demand estimates. With the pricing-in of inventory data out of the way, investor attention turned to the developments on the FX front. The dollar performance will likely continue driving the Brent price today. Our FX team expects the dollar to remain weak today, which implies Brent continuing to hover just below $70/bbl.
It bears noting that the price reaction to the publication of Reuters' estimate of a 0.1 mln bpd increase in OPEC production (all 14 members) in January (to 32.4 mln bpd) was rather muted. The increase was largely driven by gains from Saudi Arabia, Libya and Nigeria (up 0.05 mln bpd, 0.03 mln bpd and 0.07 mln bpd m-o-m, respectively). Production in Venezuela, meanwhile, continues to deteriorate, falling to 1.6 mln bpd in January, down by around 0.4 mln bpd y-o-y. Note that this year both Libya and Nigeria had pledged to keep their outputs below last year's respective highs of 1 mln bpd and 1.8 mln bpd. According to Reuters, Libyan production in January was 0.97 mln bpd (below the agreed-upon threshold). Nigerian production, however, was 1.93 mln bpd, well above its limit. Note that this surge in production comes despite more threats by Niger Delta Avengers, which has carried out attacks on oil infrastructure in the past. The militants claimed to be preparing new attacks that would target the deep-sea operations of multinational companies. The surge in Nigerian production flies in the face of recent OPEC+ agreements and could undermine investor sentiment and usher in bearish momentum in the medium term.
> Gold rises on weak dollar despite surge in Treasury yields; US jobs data eyed. After reaching a YTD high of $1,365/oz, gold has been stuck in a wide $1,335-1,350/oz range for three straight sessions. Intraday volatility remained high yesterday. Early on, gold retreated $8/oz to an intraday low of $1,338/oz. It then rebounded all the way to $1,350/oz later in the day. This late push higher occurred despite a surge in US Treasury yields (gold and UST yields normally exhibit a strong inverse correlation). This means that the dollar, which was weakening, is still in the driver's seat. Overnight, EUR/USD climbed above 1.25, having traded below 1.24 yesterday. The US jobs report comes out at 16:30 Moscow time today
This week's Fed statement described US job gains as "solid," and the consensus is for a 180k rise in the headline payrolls figure. Our FX team noted today that the dollar has become less responsive to macro data, meaning that EUR/USD could move higher even on a solid jobs report. We see gold staying within a $1,350-1,355/oz range today.