Commodities. Oil and Gold Daily - July 11, 2017

> Oil prices steady with more JMMC meeting details emerging. Brent September futures started the week near $47/bbl before dipping to $46.2/bbl around midday and then recovering to settle at $46.88/bbl, up $0.17/bbl on the day. They are trading near $47.2/bbl this morning. Trading volumes and volatility are relatively low while the market awaits a slew of important data over the next few days, including API US inventory data (tonight), the EIA numbers and OPEC production figures for June (tomorrow) and the IEA numbers (Thursday). Investors are trying to gather as much information as possible on the upcoming meeting of the joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC), which is scheduled for July 24 in St Petersburg. The key development so far is the likelihood of Libyan and Nigerian officials attending the meeting. Russian Energy Minister Alexander Novak recently said that this possibility will be discussed with OPEC Secretary-General Mohammad Barkindo. The oil ministers from Kuwait, Venezuela, Algeria, Saudi Arabia, Russia and Oman are expected to attend; the Kuwaiti oil minister (who will chair the meeting) recently said Nigeria's oil minister has been invited but will be unable to take part. The scale of the recovery in Libyan and Nigerian production and the fact that it has come simultaneously in both countries have been the most unexpected bearish developments on the oil market this year, and any talk of the countries signing up to the production cut deal will probably drive oil prices higher, so we see Brent rising toward $49/bbl prior to the meeting. However, should the JMMC meeting fail to bring in Nigeria and Libya, Brent will most likely slide back from $49/bbl to $46/bbl.
> Hedge funds improve sentiment in oil, but only slightly. Although oil prices have been stable for the last two sessions, the latest CFTC data (Brent added around $3.7/bbl in the week to July 4) showed a slight change in hedge fund sentiment. Money managers increased the number of long positions following sustained liquidations for five consecutive weeks while decreasing the number of shorts. This bullish sentiment switch was not large in volume terms but was enough to drive Brent from $46/bbl to almost $50/bbl. Given the current positioning, we still think that volume-wise there is an overhang of shorts and at some point these short positions will need to be bought back, providing prices with strong support. Net long positions in WTI and Brent futures and options increased by 46 mln bbl to 404 mln bbl, according to the CFTC data. On the ICE and NYMEX exchanges, long positions edged up 19 mln bbl to 754 mln bbl, while short positions fell by 27 mln bbl to 350 mln bbl. The ratio of long to short positions moved up from 1.95 to 1 a week before to 2.15 to 1, well below the late-February peak of 10.3 to 1. In mid-February, shorts stood at a YTD low of 102 mln bbl, while long positions reached a YTD high of 1,054 mln bbl.
> Gold holding near $1,210/oz but skewed toward the downside. By midday yesterday the gold price had fallen close to the $1,205/oz mark, only to rebound to $1,215/oz later. That gain was also short-lived, with the spot gold price on COMEX trading near $1,210/oz pressured by early gains in the dollar index and benchmark 10y US treasury yields. Gold continues to have a very strong correlation with the yen, which has weakened against the dollar this morning. The market is anticipating Fed Chair Janet Yellen's testimony tomorrow at 17:00 Moscow time and will be looking for further clues on the pace of the interest rate hike cycle and the timing of action aimed at shrinking the balance sheet. Yellen will set the tone for the rest of the week, but we expect no significant surprises, meaning that gold will likely remain under heavy pressure.