Commodities. Oil and Gold Daily - January 19, 2018

> Oil falling despite yesterday's bullish EIA inventory data and OPEC report. Early yesterday, the front-month Brent contract began to trade with a negative bias. It fell around $0.8/bbl to $68.8/bbl prior to the release of the weekly EIA report. The monthly OPEC report was released within this time frame and included only a slight upward revision to the 2018 global demand growth forecast, which now stands at 1.52 mln bpd. However, OPEC also raised its 2018 non-OPEC production growth estimate for the second time in a row, this time to 1.15 mln bpd, up from 0.99 mln bpd last month (we note that the IEA anticipates non-OPEC output growth of 1.58 mln bpd in 2018). Another bearish takeaway was the 0.04 mln bpd monthly increase in OPEC's December production, to 32.42 mln bpd, driven by higher output in Nigeria (December was the last month the country had when it did not have to hold production below 1.8 mln bpd, as per the OPEC+ deal). OPEC estimated OECD inventories at 133 mln bbl above the five-year average in November.
The release of the EIA's weekly inventory data caused Brent to jump $0.65/bbl to as high as $69.45/bbl. However, it then fell slightly to finish at $69.31/bbl, $0.07/bbl below its previous settlement. Brent lost around $0.9/bbl in Asian trading this morning and is now hovering above $68.5/bbl. This sharp drop was surprising given the bullishness of yesterday's EIA report, though signs had begun to emerge yesterday that the oil price rally was running out of steam. The EIA reported a bullish 6.86 mln bbl decrease in US crude stocks (to 412.6 mln bbl), which was more upbeat than the API's estimate of a 5.1 mln bbl drop (to 411.5 mln bbl). We find this hard to explain, given that refinery runs were down significantly while imports rose and crude production rebounded to levels seen before the disruptions due to cold weather (the pickup in US output was the major bearish factor in the report). In our view, another bullish highlight was the strength of demand. While gasoline stocks were up by 3.6 mln bpd and distillate stocks fell 3.9 mln bpd thanks to the unusually cold weather, the buildup for both over the last month has been subdued given the strength of refinery runs, which have been well above historical highs for this time of year.
Today, the IEA's monthly report (expected at 12:00 Moscow time) should be the determining factor for sentiment later in the day. In our view, it is rather likely to include an upward revision to the IEA's 1.29 mln bpd 2018 global demand growth forecast. IEA's preliminary OECD inventory data for December is also likely to show that the inventory overhang shrank after growing slightly in November. All in all, we expect the report to provide support for oil prices, halting the recent decline. We also think that today's US rig count data is unlikely to have a major impact on prices. We expect the front-month Brent contract to continue trading within a $68.5-69.0/bbl range today, though much depends on the IEA's global demand growth estimate.
> Gold steady; US government shutdown is major risk event. For most of the day yesterday, gold was trading steadily within a range of $1,325-1,332/oz, at first rising toward the upper end and then easing back from it. Gold mirrored EUR/USD for most of the day, with midday gains in Treasury yields limiting gains in prices. The key story for gold today will be whether the Senate can pass a bill to avoid a US government shutdown, which will otherwise begin at midnight. Overnight, the Republican-controlled House of Representatives passed a stopgap bill. But it is likely to face strong opposition from Democrats in the Senate. The day ahead is rather quiet in terms of important scheduled data. We note US consumer sentiment data, due at 18:00 Moscow time; the inflation expectations component may be of heightened interest to the market given the current Fed debate. The only further upside we see for gold today is in a potential US government shutdown, which we see as unlikely, as we expect a short-term funding bill to be passed. We expect gold to consolidate near the upper end of a range of $1,330-1,335/oz for most of the day.