Commodities. Oil and Gold Daily - July 10, 2017

> Oil remains pressured as signs of supply reduction fade. Brent for September delivery was trading steadily near $47.5/bbl during the first half of the day on Friday. Later on, it retreated about $0.8/bbl to settle at $46.71/bbl, down $1.4/bbl on the day. It is trading close to $46.8/bbl this morning. On Tuesday, it came close to breaking the $50/bbl resistance level after gaining as much as $5/bbl over the previous nine trading days. This bullish run snapped last Wednesday. On Thursday, the weekly EIA report showed that US production had recovered in the previous week, to 9.34 mln bpd, after a sharp drop the week before (by 0.1 mln bpd to 9.25 mln bpd). This ran against the argument that US production was structurally declining, which had been supporting prices up until then. We were among the pessimists in this regard, attributing the then-slowing pace of production to a temporary factor, a tropical storm in the Gulf of Mexico, which did not actually impact crude imports but halted deep-water operations, and to seasonal maintenance in Alaska. The support gained from the June 30 Baker Hughes report (prices rose by as much as $0.8/bbl intraday), which showed a two-unit decrease in the number of active US oil rigs, was short-lived, as the latest report, for the week to July 7, showed an increase of 7 units to 763. The market's negative reaction to the latter showed that expectations of stalling US production have been completely wiped out.
Even more important for the market is the m-o-m rise in OPEC exports in June, by 0.45 mln bpd, as estimated by Reuters last week. We think this was mostly attributable to Nigeria and Libya. We still believe that prices will really only start to move higher once investors see, in tandem with the production cuts, a decline in OPEC exports and a drawdown in global inventories, and we are currently nowhere near this. Assessments of OPEC production in June by the OPEC Secretariat and IEA will be released July 12 and 13, respectively. Both are more likely to pressure prices than fuel any bullish sentiment. The market expects confirmation of Reuters' estimates of an increase in total crude output (including those party to the cut deal and those not) from 32.44 mln bpd in May to 32.72 mln bpd in June. We think that throughout this week Brent will be trying to defend the key support level of $45/bbl.
> Gold continues to slide, key support of $1,200/oz eyed. During the Friday session, gold prices could not hold above their mid-day high of $1,220/oz, falling to $1,210/oz later in the day and carrying negative momentum into this week. They are trading at $1,208/oz today. Gold dropped by almost $32/oz last week, despite sideways trading in the DXY, which early in the week started moving upward from 95.6, reached the 96.5 mark mid-week, but then retreated to 96, where it is currently trading. Gold was mostly pressured by strong data on the US labor market, supporting confidence in its health and in another Fed rate hike this year. The latter would be a very bearish development for gold. Nonfarm payrolls increased by 222,000 in June, beating expectations of 179,000. Meanwhile, last week's G20 summit in Germany failed to deliver geopolitical uncertainty. Without this support, prices, in our view, will struggle to hold above the key support level of $1,200/oz this week.