Commodities. Oil and Gold Daily - July 14, 2017

> Oil up on strong Chinese import data. After falling by $0.5/bbl to $47.25/bbl early yesterday, the September Brent contract surged by almost $1.2/bbl to settle at $48.42/bbl, up $0.68/bbl on the day. Since yesterday's settlement, the front month contract has steady at around $48.4/bbl. The strong price pick-up yesterday was mainly driven by bullish Chinese customs data on crude imports in June. The numbers were essentially unchanged m-o-m, showing a slight drop by 1mln tonnes to 36.1 mln tonnes. What is important here is the fact that the June numbers are 1.33 mln bpd higher y-o-y and also exceeded expectations following what had seemed to be a stall in Chinese demand starting in April, when imports fell 0.8 mln bpd from March. The strength in crude imports is mainly attributable to Chinese majors buying crude for upcoming new refinery start-ups and expansions for which the crude is being put into storage ahead of test runs. This has resulted in a staggering 1.07 mln bpd gain in 1H17 imports over 1H16 and in turn implies that the Chinese market is overbought by almost 0.4 mln bpd. This and the likelihood that Chinese majors will be forced to cut refinery runs in 3Q17 to drain excess refined product inventories may pressure import levels in 2H17. We think imports in 2H will be below the 1H17 average. We expect a y-o-y gain for the full-year 2017 of around 0.6 mln bpd.
Putting this into a global context, we do not think that potentially lower 2H17 imports will lead to a reduction of US exports to China. This is because Saudi Arabia recently stated that it would reduce its Asia-bound exports by 0.2 mln bpd in August alone and, given its pledge to cut production and the fact that its domestic storage remains down near operational levels, it is not likely to increase shipments later in the year. This means that there will be room for US volumes this year. This is important because whether (and when) the market rebalances - and subsequently shows a pick-up in prices - depends strongly on US crude oil inventories being drawn down.
> Gold retreats as dollar gains on strong employment, CPI eyed. Mid-day yesterday gold prices started to retreat from the $1,224/oz level reached earlier in the day following the gains in the DXY. Gold is trading around $1,217oz this morning. Yesterday's move was mainly driven by the US labor market data, which showed lower than expected unemployment filings, which were down 3,000 to 247,000. This was the first w-o-w reduction in a month. Weekly jobless claims stayed below 300,000 for the 123th consecutive week, which points to a tight labor market and healthy economy. This fuels hopes of a pick-up in inflation, which would provide further grounds for another rate hike this year, as is still widely expected. Speaking of the key inflation measures, the core PPI, which in the last 12 months through May stood at 2.1%, is now down by 0.1% to 2% through June. Meanwhile, on the second day of her congressional testimony, Fed Chair Janet Yellen delivered no surprises, emphasizing the rate hike agenda this year and saying that the currently weak inflation does not mean the Fed's 2% core PCE target will not be reached later in the year. Today, investors will be watching the CPI release, which will certainly influence the timing of the next hike. We expect the new number to support Yellen's recent comments that inflation might move towards the 2% target. This would exert pressure on gold prices, which in our view will end the week at around $1,210/oz.