Commodities. Oil and Gold Daily - January 18, 2018

> Oil prices supported by threat of attacks in Nigeria; OPEC report eyed. After hovering above $69/bbl early in the day yesterday, the front-month Brent contract started to slide and eventually hit an intraday low of $68.57/bbl. Later, however, it started to pare the losses and managed to record gains on the day, up $0.23/bbl to $69.38/bbl. Prices found support midday from a statement on the website of a Nigerian militant group, the Niger Delta Avengers, which has carried out attacks on oil infrastructure in the past, saying that the group was preparing new attacks targeting the deep-sea operations of multinational companies. In 2016, attacks reduced the country's output from 2.0 mln bpd to around 1.4 mln bpd, which was why it was given an exception from output cuts under the OPEC+ deal last year. Production has been recovering gradually since then, with the latest estimates showing it being close to 1.8 mln bpd.
Around 15:00 Moscow time today, OPEC will release its monthly report. We expect it to show a m-o-m production increase in December on the back of a pickup in Nigerian output of around 0.08 mln bpd to 1.86 mln bpd (December was the last month before the country had to hold production below 1.8 mln bpd under the OPEC+ deal). We do not think OPEC will raise its global demand growth projection from 1.51 mln bpd y-o-y for 2018 or lower its US production growth projection from 1.05 mln bpd y-o-y (this is our base case, but there is a chance that it will be revised upward). We see potential for a slight correction in Brent to $68.5/bbl following the release. Note that on Sunday the monitoring committee (JMMC) will meet in Oman. Likely to be discussed, in our view, is how to phase out the production cuts in 2H18.
On the back of API inventory data, Brent gained $0.25/bbl to $69.5/bbl after the close. The headline inventory figure was bullish, though the refined products number was slightly bearish. In the week ending January 12, US crude inventories fell 5.1 mln bbl to 411.5 mln bbl, down from the EIA's 419.5 mln bbl estimate last week. The draw was driven by a 0.4 mln bpd w-o-w decrease in imports. Gasoline stocks were up 1.8 mln bbl w-o-w, and distillates 0.6 mln bbl. We think today's EIA data, due at 18:30 Moscow time, is likely to show another strong draw in crude inventories, offset by stronger combined builds in gasoline and distillates than reported by the API, as well as by rebounding US crude production. We expect Brent to end the day closer to the lower end of a range of $68.5-69.0/bbl.
> Gold and euro retreat as strong US data and upbeat Beige Book support dollar. For most of the day yesterday, gold was trading sideways, although it tumbled from $1,344/oz to $1,332/oz early on, only to rebound above $1,340/oz shortly thereafter. Overnight, however, gold plummeted $15/oz to $1,325/oz as both the DXY dollar index and Treasury yields recovered from recent lows. Yesterday, the euro underwent a correction on profit taking following its recent rally. A comment from ECB policymaker Ewald Nowotny that the strengthening of the euro was "not helpful" amplified the pressure. Strong m-o-m US industrial production growth in December, despite almost flat manufacturing output, also supported the dollar fundamentally. Further support came from the Fed's Beige Book, which was released at 22:00 Moscow time and pointed to a continuation of the economic expansion that has been seen across the 12 Federal Reserve districts since late November. It also indicated an optimistic outlook for this year. Today, investors will eye the Philadelphia Fed business outlook survey and housing starts data from the US (both due at 16:30 Moscow time). They will also watch anxiously to see if a US government shutdown is averted. We think that gold should hover closer to the upper end of the $1,325-1,330/oz range for most of the day.