Commodities. Oil and Gold Daily - January 22, 2018

> Oil prices stable amid bearish IEA monthly report... On Friday, the front-month Brent contract traded sideways within the $68.3-69/bbl range before eventually settling at $68.61/bbl, $0.7/bbl below the previous settlement. The release of the monthly IEA report on Friday was the clear highlight. The agency maintained its rather downbeat (relative to other major market research sources) y-o-y global demand growth assessment for 2018, this time estimating growth at 1.26 mln bpd. Energy Aspects, which expects 1.7 mln bpd y-o-y growth, even called this an "egregious underestimate." OPEC's latest view is for growth of 1.52 mln bpd. The IEA's more conservative forecast is predicated on the idea that higher oil prices this year will somewhat dampen demand. The IEA's latest estimate for y-o-y non-OPEC supply growth was revised up 0.1 mln bpd to 1.7 mln bpd, mainly due to a more optimistic outlook for US production this year. This is in line with Energy Aspect's view. OPEC, however, sees a more conservative 1.15 mln bpd in non-OPEC growth. Another major takeaway from the IEA report was the agency's view that global oil markets will eventually tighten this year as a result of rapidly falling Venezuelan output, which in December hit a 30-year low of 1.61 mln bpd. Note that in late 2015 it had been hovering just below 2.4 mln bpd before embarking on a rapid slide. OECD inventory levels (and thus the scale of the overhang compared to the five-year average) were revised lower in November to 90 mln bbl (up from 98 mln bbl previously). The preliminary estimate for December was 68 mln bbl. The total overhang has broken below 2,900 mln bbl for the first time since 2015. This positive data at least somewhat balanced out the otherwise rather conservative outlook for this year.
> ...and JMMC weekend meeting. This morning Brent remains within a range of $68.5-69/bbl. Investors are digesting the five-unit decrease in the Baker Hughes oil rig count and, more importantly, the post-JMMC meeting comments. Nothing was said on the phasing out the production cuts in 2H18. The Saudi energy minister emphasized his view that a full rebalancing would "certainly not" occur in 1H18 and that the group needed to identify the final rebalancing target more clearly. Readiness to cooperate beyond 2018 was also expressed; however, we do not think that production cuts on the current terms will last beyond 2018. We continue to expect a medium-term correction in oil prices, although the news flow following the weekend does not yet support this. Brent will likely remain closer to the upper end of the $68-69/bbl range for most of the day, in our view.
> Gold prices remain elevated on US government shutdown. Gold prices started to gain strength early on Friday, surging by almost $11/oz to $1,338/oz before sliding closer to $1,330/oz later in the day. This morning, gold remains near $1,330/oz, supported by safe-haven demand as investors digest the partial government shutdown in the US - the first since 2013. Support to gold is also coming from strength in the euro, as Germany's SDP has agreed to enter formal talks with Chancellor Merkel in a bid to form a new ruling coalition. Given this week's key events - the BoJ decision tomorrow and ECB on Thursday (both could result in pressure on the DXY if exit strategies to QE are hinted at, although our FX team sees this as unlikely) - we think that the downside to gold prices is limited at $1,325/oz. Today, we expect gold to hold within the $1,330-1,335/oz range for most of the day.