Commodities. Oil and Gold Daily - July 13, 2017

> Oil prices fail to rise on large US inventory draw. Brent for September delivery was trading steadily around $48.2/bbl throughout the first half of the day yesterday. It then gained $0.45/bbl in the hour prior to the release of EIA weekly inventory data, but then lost $1.2/bbl to $47.4/bbl right after the release. It eventually settled at $47.74/bbl, up $0.22/bbl on the day. The EIA reported a 7.56 mln bbl draw in US crude inventories to 495.35 mln bbl in the week to July 7, compared with the 2.45 mln bbl decline forecast by Bloomberg and the 8.1 mln bbl decline reported by the API the day before. One factor that drove the result was the 0.13 mln bpd w-o-w drop in crude imports (to 7.6 mln bpd), the biggest decreases seen in imports from Saudi Arabia, Iraq and Nigeria. Another factor was the 0.1 mln bpd increase in domestic refining inputs (to 17.24 mln bpd), which registered a second consecutive week of increases (all the way from 16.89 mln bpd in the week to June 23). Exports were also up, by a significant 0.15 mln bpd, to 0.92 mln bpd, close to 1 mln bpd, a level not seen since late May. This may mean that the weakness in demand for light sweet crude is slowly coming to an end. Gasoline stocks, meanwhile, fell 1.65 mln bbl w-o-w, exceeding the 0.8 mln bbl draw reported by the API. Distillate inventories increased by a significant 3.13 mln bbl, a result also above the API estimate of a 2.1 mln bbl build.
Offsetting the draw in the market's eyes, and fueling bearish sentiment, was a reported sharp pickup in the pace of US crude production last week, which was up 0.06 mln bpd to nearly 9.4 mln bpd. Since early May, it had come close to 9.35 mln bpd on a couple of occasions but had failed to break above that level, which fed bullish sentiment and sparked discussion that US production growth could be stalling. Yesterday's numbers did much to dispel these doubts. Gasoline demand rose 0.08 mln bpd to 9.78 mln bpd w-o-w, remaining very volatile and on a monthly average basis failing to exceed the levels seen at this time last year. Distillate demand fell 0.4 mln bpd to 3.86 mln bpd.
After the EIA numbers were released, Brent retreated to where it had been late Tuesday, before prices increased on the API report. This implies that yesterday's price movements can be best characterized as a "buy-the-rumor-sell-the-news" reaction. Crude, gasoline and distillate inventories remain very close to the levels at this time last year, meaning that the OPEC production cuts have not yet achieved a breakthrough and that the market rebalancing is happening very slowly. Investors are not yet ready to trade Brent above $50/bbl.
> OPEC report does not impact prices, Nigeria ready to cap output. Oil prices were deaf to the OPEC Secretariat's monthly report, which was released mid-day yesterday. Total output across the cartel increased by 0.39 mln bpd to 32.61 mln bpd in June, primarily driven by Nigeria and Libya, with Saudi Arabia and Iraq also contributing to the increase. Compliance to the production cut deal now stands at 96%, down from the 100% level reported last month. Important, too, is OPEC's estimate that, for the market to reach balance, its own output must average 32.2 mln bpd next year, 0.06 mln bpd lower than the expected 2017 average. This implies that a surplus in 2018 is almost inevitable.
After the release of the report, the Nigerian oil minister seemed to suggest that his country was ready to make cuts once domestic production had stabilized. This came along with news that OPEC governors will gather for an extraordinary meeting on July 17, ahead of the next meeting of the Joint Ministerial Monitoring Committee (JMMC), scheduled for July 24 in St Petersburg. This is definitely a potential driver of bullish sentiment, since it can be confidently assumed that there will be a discussion of, and potentially a decision on, bringing Libya and Nigeria into the deal.
> Gold prices gain a little ground after Yellen's testimony. Gold advanced $7/oz to $1,225/oz mid-day yesterday but then quickly retreated to $1,220/oz, tracking Fed Chair Janet Yellen's testimony before Congress. This morning, prices remain in a range of $1,220-1,225/oz. The testimony turned out to be less hawkish than had been expected. While Yellen said that the economy was strong enough to handle further tightening, she underlined the challenge posed by stubbornly low inflation. US Treasuries, which already had been falling since late Tuesday, fell further on her remarks. This has been the major support behind gold prices, which have gained almost $14/oz since Tuesday. Investors will now look forward toward the Labor Department CPI data, which will be released on Friday and will certainly influence the timing of the Fed's next rate hike and balance-sheet reduction. Yesterday Yellen said the latter would be reduced relatively soon.