Commodities. Oil and Gold Daily - January 25, 2018

> Oil rallies on EIA data, dollar slump and upbeat OPEC+ comments. During first half of the day yesterday, the front-month Brent contract was trading within the $69.6-70/bbl range but dipped to the lower end of that range before the EIA data release. The release caused Brent to spike $0.8/bbl, although this proved to be short-lived, and Brent quickly slid back to around $69.6/bbl. However, it then started to rally and eventually settled at $70.53/bbl, $0.57/bbl above the previous settlement. Post-settlement, meanwhile, it climbed further, to $71/bbl.
Choppy trading following the EIA data release spoke to the report's rather mixed nature. This most obvious highlight was yet another weekly draw in US crude oil inventories, which contradicted the latest API data. The EIA reported a bullish 1 mln bbl decrease in crude stocks (to 411.6 mln bbl), while the API had reported a 4.8 mln bbl expansion to 416.2 mln bbl. As was the case last week, we find this drawdown hard to explain, given that refinery runs were down significantly while imports rose and crude oil output surged 0.13 mln bpd to almost 9.88 mln bpd. Gasoline stocks were up again, this time by 3.1 mln bbl; so were distillate stocks, for which a weekly ease in demand led to a 0.6 mln bpd build. Thus, a number of bearish takeaways managed to balance out the immediate positive fact of a headline crude inventory draw. However, later on prices managed to find other supporting factors. One was a slump in the dollar that makes dollar-traded crude cheaper for those holding other currencies. Although the DXY does not impact oil prices on a day-to-day basis, strong shifts in the dollar (such as what has been seen so far this year) do eventually start to have an effect.
In conjunction with the factors listed above, oil was supported by upbeat comments by Saudi and Russian Energy ministers in Davos. In our view, the highlight was a note made by Khalid Al-Falih that OPEC is unlikely to change course at the next major OPEC+ meeting. This point has continued to be a major concern of investors and analysts. Al-Falih also said that the June meeting would be a good opportunity to simply start discussing a "gradual smooth exit." The ministers also reiterated that they were targeting the inventory surplus and not a certain oil price. Today we think that Brent is likely to slip just below $70/bbl on profit taking after yesterday's rally.
> Gold prices skyrocket as dollar crashes. Gold, which had been hovering above $1,340/oz, took off this morning, peaking at $1,366/oz. This year, dollar weakness has been the main driving factor for gold, whose de-correlation with Treasuries is becoming more and more apparent. After plunging below 90 at the start of the day yesterday, the DXY index bottomed at 88.8 this morning, while EUR/USD rallied from 1.230 early yesterday to 1.245 this morning. The latest wave of dollar weakness came after seven sessions of EUR/USD trading steadily within a 1.22-1.23 range. The US currency was already in a shaky position after Donald Trump imposed import tariffs on washing machines and solar panels, provoking speculation over further protectionist measures from the US. Then US Treasury Secretary Steven Mnuchin delivered a further blow at Davos yesterday when he said that a weak dollar would be good for long-term economic growth and would be welcomed. Today, investors are eying an ECB rate decision (at 15:45 Moscow time, with a press conference at 16:30) and will be looking closely for signs of a QE exit strategy. We, however, think ECB President Mario Draghi will attempt to talk the euro lower after its recent gains and that the resulting profit taking after yesterday's rally will support the dollar, pushing gold back into the $1,350-1,355/oz range.