Commodities. Oil and Gold Daily - July 19, 2017

> Developments over OPEC deal expansion drive prices early... Brent for September delivery shot up by almost $1/bbl mid-day yesterday, from $48.4/bbl to $49.4/bbl, but the gains were short-lived and prices eventually settled at $48.84/bbl, up $0.42/bbl. The mid-day surge came on the back of comments by officials in OPEC countries, as investors and prices are now very sensitive to OPEC-related news ahead of the meeting of the joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC), scheduled for July 24 in St Petersburg. The key topic remains the likelihood of Libya and Nigeria's being brought into the deal. The Petroleum Policy Intelligence (PPI), a consultancy firm, reported mid-day that Saudi Arabia was willing to cut deeper, enough to offset increasing Nigerian and Libyan production. A Reuters source, who is Saudi and is "familiar" with oil policy, did not deny this. After this emerged, news broke that the head of Libya's national oil company would attend the JMMC meeting in an effort to present a "unified Libyan position...that will show we can act together in the national interest." Note that Libya and Nigeria's combined June crude oil production exceeded their combined October 2016 production (the reference level of the deal) by 0.45 mln bpd, offsetting the 1.25 mln bpd cut by other OPEC members in June by 36%.
> ...but US inventory build pressures them later on. After settlement, Brent fell to $48.6/bbl on the weekly API data release. It reported that US crude stocks had increased 1.6 mln bbl to 497.2 mln bbl in the week to July 14, compared with the Bloomberg median estimate of a 3.5 mln bbl decline. It was driven by a rise in imports, which increased 0.5 mln bpd to 8.1 mln bpd in the same period, while refinery runs were slightly down, by 0.05 mln bpd. Last week, the EIA estimated that US crude inventories had fallen to 495.35 mln bbl in the week to July 7, below the latest API figure by 1.85 mln bbl. Refined product inventory data, on the other hand, was bullish. Gasoline stocks, as expected, fell 5.4 mln bbl, compared with the Bloomberg median estimate of a 1.3 mln bbl decrease. Distillate inventories fell 2.9 mln bbl, versus the Bloomberg median estimate of a 1.2 mln bbl increase.
The EIA's inventory report for last week is due today at 17:30 Moscow time. In our view, it is more likely to drive prices below $48/bbl today than to cause a price uptick. Recently, EIA data has been in line with API data, and we see this pattern continuing this week, as well. In addition, we do not think that the market is ready to trade Brent above $50/bbl yet. In terms of price movement, we expect a repeat of what happened last Wednesday, when Brent settled at $47.7/bbl.
> Gold gains more ground on dollar weakness. Gold continued to build on its recent success yesterday, adding another $10/oz to close at $1,244/oz. The gains occurred amid a drop in the 10y US Treasury yield and the dollar. This morning, however, gold has retreated to the $1,240/oz area. Recently, growing uncertainty with regard to US President Donald Trump's economic agenda has driven investors toward safe-haven assets, the most liquid of which is gold. Bullion's strong run in 1Q17, driven by enthusiasm over Trump's plans for tax reform and infrastructure spending, eventually petered out, and bearish momentum began to build as investors started losing hope that the president's proclamations would eventually materialize in the form of legislation. Trump himself has emphasized that none of the promised tax reductions or infrastructure spending will come through until Obamacare is repealed and replaced. This suggests that his pro-growth agenda may have reached a dead end, as some of his fellow Republicans in the Senate have come out against the proposed Obamacare replacement. Given the current developments, we still see gold pushing toward the $1,245-1,250/oz range by the end of this week.