Commodities. Oil and Gold Daily - January 9, 2018

> Oil up on CFTC data; EIA report and API weekly data eyed. Brent for delivery in March was trading in a range of $67.5-68.0/bbl for most of the day yesterday and eventually settled at $67.78/bbl, up $0.16/bbl from Friday. This morning it has broken resistance of $68/bbl and is trading slightly above that level, generally supported by the latest CFTC data, which continued to show firm bullish sentiment. The data for the week ending January 2 (when Brent started to rise from $65/bbl to firmly within the $66-67/bbl range) showed that hedge funds had increased their long positions in WTI and Brent futures and options relative to short positions w-o-w from a ratio of 9.5 to 1 to 9.8 to 1, more bullish than in any week of December. Long positions were trimmed by roughly the same amount as short positions, with the total volume of the latter of 115 mln bbl close to falling below the lowest volume seen in 2017 of 102 mln bbl.
The large skew in favor of long positioning suggests that many hedge funds may be happy to take profits. Similarly large overhangs usually spark a sharp selloff in the absence of positive market developments. For now, protests in Iran and the latest detentions of Saudi princes are supporting the bull run in prices that has seen Brent gain almost $7/bbl since early December. In the medium term, we expect a bearish shift, most likely driven by signs of weaker market fundamentals. Front-month calendar spreads are already showing this. In addition, the fact that refining margins in Singapore are currently at three-year lows is another sign of weaker fundamentals, since they could lead to lower refinery runs and thus lower demand for oil in the medium term.
Today, the EIA will release its short-term energy report (STEO) at 20:00 Moscow time. On account of higher oil prices, it is likely to raise its forecast of US production growth for 2018 from 0.78 mln bpd, despite a five-unit drop reported in the latest oil rig count data. Overnight, the API will release its estimate for the weekly change in US inventory levels. The median of estimates given in a Bloomberg survey for EIA inventory data (due tomorrow at 18:30 Moscow time) suggests a 3.75 mln bbl w-o-w draw in crude stocks, 3.25 mln bbl build in gasoline stocks and 2.25 mln bbl build in distillate stocks. We expect Brent to come under pressure later today, breaking below $68/bbl following the STEO and API reports.
> Gold stable despite recovering dollar and Treasury yields. This morning, gold is trading in a range of $1,315-1,320/oz, where it spent most of the past two sessions. We see it as biased toward a break above resistance at $1,320/oz. Yesterday, gold managed to withstand a strengthening US dollar and a late pickup in Treasury yields thanks to a rise in the safe-haven Japanese yen (with which it is positively correlated) after the Bank of Japan announced that it would cut back on its purchases of long-dated Japanese government bonds in its open market operations, which many investors viewed as a sign that the regulator was preparing to rein in stimulus measures. This week, there will be some important US data that may help determine where gold prices are heading, including NFIB sentiment today (at 14:00 Moscow time) and CPI and retail sales on Friday. As our FX analysts noted in today's FX Beat, the dollar is likely to come under pressure today due to technical factors, which would be to gold's benefit. We would also like to note that we have seen signs of a slight ease in tensions on the Korean Peninsula today. North Korea has confirmed that it will send a delegation to the Winter Olympics in South Korea next month, and the host will likely consider temporarily lifting some sanctions in order to make the visit possible. This potentially bearish development could - but in our view is unlikely to - pressure gold today. Amid a likely weakening dollar, we do not think a break above $1,320/oz is in the cards either.