Commodities. Oil and Gold Daily - January 16, 2018

> Oil prices stable; EIA drilling report and API inventory data eyed. After hovering just below $70/bbl early yesterday, the front-month Brent contract started to slide, hitting an intraday low of $69.56/bbl midday. The decline proved to be short-lived, and Brent quickly pared its losses, eventually finishing at $70.26/bbl, $0.39/bbl above its previous settlement. This morning, the Brent contract for March delivery is trading around the $70/bbl mark. Trading activity yesterday was subdued due to the holiday in the US. However, yesterday's session was the fourth straight in which Brent tried to consolidate above the key $70/bbl resistance level. So far, all of its attempts to hold above this level have been unsuccessful. This is partly due to technical resistance. For instance, the 50% Fibonacci retracement level stands at $71.47/bbl, and the 14-day Relative Strength Index has been in the overbought zone (where prices are prone to a correction) for four days in a row. The upper Bollinger band is also providing resistance at $71.2/bbl. As history has shown, bull runs in the oil market are difficult to overturn, and this one has fundamental support. However, we think that this week will provide enough significant data to push oil into decline, with Brent eventually dipping slightly below the $68/bbl mark.
Today market players will be eyeing the EIA's monthly drilling productivity report (due at 22:00 Moscow time), which forecasts US shale production in the upcoming month. This will be followed up by API's weekly US inventory data overnight. Last week, investors took rather positively the decrease in the API's and EIA's headline crude inventory figures. The sharp 0.29 mln bpd drop in the EIA's US crude production estimate to 9.49 mln bpd was also encouraging, as earlier last week the EIA had published a forecast that production would average 9.94 mln bpd in January. We attribute the recent drop-off in US output to the extremely cold weather in northern states at the start of the year and assume that it will be temporary. Today, we expect the EIA to indicate that US tight oil production will continue to rise in February. Overnight, we expect the API inventory data to be bearish, both for crude oil and refined product stocks. We expect a w-o-w recovery in US oil production and a slowdown in refinery crude inputs to reduce the pace of the crude inventory drawdown or even result in a small build. The shift in stockpiles from the crude to the refined products category is also likely to continue, as end-user demand remains seasonally subdued. We do not expect prices to come under pressure until late in the day, when the data is due. Before then, we see Brent continuing to trade within the $69-70/bbl range.
> Gold prices stabilize as EUR/USD rally eases. After surging by around $7.5/oz to just below $1,345/oz early yesterday, gold started to drift closer to the lower end of the $1,340-1,345/oz range. This moderate slide during the day was mainly driven by an easing in the EUR/USD rally (which drove gold to its current highs). Investors appear to have now finished pricing in the prospects of the ECB winding down its quantitative easing program earlier than had previously been expected. In fact, comments by ECB Governor Ardo Hansson yesterday that the monetary stimulus program would likely be ended after September did not elicit a further uptick in the euro. Today's schedule is again quiet. The US sees Empire State manufacturing at 16:30 Moscow time. Our FX analysts think that the dollar might take a breather today from its recent losses and that EUR/USD may hold between 1.22 and 1.2250. This correlates to gold trading within the $1,335-1,340/oz range, which we think is the most likely outcome today.