Commodities. Oil and Gold Daily - January 31, 2018

> API estimates hint at strong oil price correction upon EIA data release. The front-month Brent March contract traded at around $69/bbl early in the day yesterday before eventually settling at $69.02/bbl, down $0.44/bbl on the day. The April contract, which will take over front-month status tomorrow, closed yesterday at $68.52/bbl, down $0.68/bbl on the day. As has been the case since mid-January, Brent continued to follow the paths of EUR/USD yesterday, although since late Monday Brent has become a lot more sensitive to strengthening in the dollar than to weakening. This was quite apparent yesterday. Given that EUR/USD has been trading sideways within the 1.235-1.245 range for the last few sessions, Brent over this time has slid by almost $2.5/bbl. One of the key bearish factors in play this week is the expectation and subsequent pricing-in of the first weekly build in US crude oil inventories after ten consecutive weeks of declines.
The front-month Brent contract continued to slide after settlement yesterday, breaking below $69/bbl before the weekly API data release. After the data came out, Brent dipped another $0.35/bbl, falling to within the $68-68.5/bbl range, where it continues to trade this morning. The second-month contract is hovering just below $68/bbl. US crude inventories were expected to surge and, according to API, expanded by 3.2 mln bbl to 419.5 mln bbl in the week ending January 26 (the EIA estimated US crude stocks at 411.6 mln bbl in last week's data). The build was mainly driven by a very strong 0.8 mln bpd w-o-w drop in refinery runs. Refined products data was mixed, with gasoline stocks up 2.7 mln bbl, while distillates were down by 4.1 mln bbl. We think today's EIA data, due at 18:30 Moscow time, will have a very strong negative impact on prices. We expect a substantial increase in crude inventories (around 5 mln bbl, which would strongly exceed expectations and the API estimate) on lower refinery inputs and surging oil production. Mixed refined product data is expected to be overshadowed by the bearish developments in crude. As a result, we expect the Brent April contract to end the day at close to $67/bbl.
> Gold correction halted; volatile trading ahead of Fed meeting. Gold managed to find support at $1,335/oz yesterday after losing around $30/oz over the previous three trading sessions and subsequently rebounded all the way to $1,348/oz following a dip in both the dollar and US Treasury yields. However, this gain proved short-lived, and it soon retreated back below $1,340/oz. It has picked up somewhat this morning in Asia on further dollar weakness sparked by Donald Trump's State of the Union address during which he urged Congress to approve a new $1.5 trln infrastructure spending plan. Increased gold price volatility comes ahead of the results of the latest Fed meeting, which we expect at 22:00 Moscow time. Before that, investors await the eurozone CPI due at 13:00 and US ADP employment report at 16:15, which our FX team does not expect to have a significant impact on the dollar and hence gold, which we expect to consolidate within the $1,340-1,345/oz range today. If the FOMC statement pushes the dollar lower, gold could break slightly above $1,345/oz.