Commodities. Oil and Gold Daily - July 20, 2017

> Oil prices rise on US inventory draw. The Brent September contract started to gain ground early in the day yesterday, rising from Tuesday's settlement price by $0.26/bbl to $49.1/bbl prior to the crucial EIA weekly inventory data release. It then gained $0.6/bbl after the release and eventually settled at $49.7/bbl, up $0.86/bbl on the day. The EIA reported a 4.7 mln bbl draw in US crude inventories to 490.6 mln bbl in the week to July 14, compared with the 3.5 mln bbl decline forecast by Bloomberg and 1.6 mln bbl gain reported by the API the day before. One factor that drove the result was an end of selling from the US Strategic Petroleum Reserve (SPR), which since February had kept commercial stocks from falling more significantly. This implies that inventory draws should be easier to achieve further along in 2H17. Imports to the US increased w-o-w by 0.39 mln bpd to almost 8 mln bpd, although Saudi shipments fell to 0.53 mln bpd, a seven-year low and 0.75 mln bpd below the average May figure. This is especially bullish as it means that Saudi officials are delivering on their promises to significantly decrease exports (especially to the US) in late July and August. The largest w-o-w gains in imports came from Colombia (0.44 mln bpd) and Kuwait (0.32 mln bpd). Exports decreased w-o-w from 0.92 mln bpd to 0.73 mln bpd while domestic refining inputs were down by 0.13 mln bpd to 17.12 mln bpd. US production growth is running at a good pace, rising by 0.032 mln bpd to 0.943 mln bpd and by 0.11 mln bpd from the June average.
All four weekly changes mentioned above (production, imports, domestic consumption and exports) were in the direction of an inventory build, but were not sufficient to actually move inventories higher and pressure prices. Gasoline stocks, meanwhile, fell 4.4 mln bbl w-o-w, exceeding the 1.3 mln bbl Bloomberg estimate, although falling short of the 5.4 mln bbl draw reported by the API the day before. Total US gasoline stocks are now lower y-o-y by almost 10 mln bbl, with demand looking healthier than at the start of the summer, implying a balanced market. Distillate inventories fell by 2.1 mln bbl, versus the Bloomberg estimate of a 1.2 mln bbl rise, a result also below the API estimate of a 2.9 mln bbl draw.
The unexpected end to the SPR sale has supported the inventory draw and threw a wrench in our view that oil inventories would rise in line with the numbers reported by the API the day before. However, we still think that that the market is not yet ready to trade Brent above $50/bbl and expect the front-month contract to bounce around within a range of $48.5-50.0/bbl prior to the Joint Ministerial Monitoring Committee (JMMC) meeting scheduled for July 24 in St Petersburg. This meeting will go a long way in determining which side of the $50/bbl mark Brent will trade on for the rest of the summer.
> Global central banks drive gold prices. Gold prices had a topsy-turvy day yesterday, dropping $7/oz to $1,236/oz midday and then bouncing back to finish at $1,242/oz, which is still lower than the $1,244/oz level touched late Tuesday. Gold's support later in the day came from the Bank of Japan, which, unlike the major Western central banks, decided to keep its monetary policy unchanged, leaving in place its vast stimulus program and its 10-year government bond yield target of 0%. This left little reason to invest in yielding Japanese securities, which supported gold prices. This morning, however, the gold price has fallen from $1,242/oz to $1,237/oz, as investors no longer expect ECB President Mario Draghi to pave the way for a rather hawkish change in policy after today's meeting, following his hints at a reduction in monetary stimulus back in late June. The ECB rate decision is due at 14:45 Moscow time, with Draghi scheduled to speak at 15:30. Our take is that this time Mario Draghi's cautious approach will pressure the euro, supporting the dollar and forcing gold below $1,235/oz.