Commodities. Oil and Gold Daily - July 25, 2017

> JMMC meeting constructive, delivers fresh remarks. Brent for September delivery was trading within a range of $47.7-48.3/bbl at the start of the day yesterday as investors awaited the OPEC and non-OPEC monitoring committee, or JMMC, meeting. After the meeting ended and the first official comments started to appear, Brent surged by almost $0.7/bbl, to $48.8/bbl, and eventually settled at $48.6/bbl, up $0.54/bbl on the day. Officials gave a number of positive - but more importantly, fresh - remarks, but, as expected, no recommendation to the OPEC Secretariat in favor of deepening the cuts was given, which would have been enough to drive Brent above $50/bbl. Sentiment was helped by remarks by many ministers that the deal could be extended beyond 1Q18 if necessary, as we have heard before. Among the fresh remarks, the most important, in our view, was a proposal concerning the strategy on bringing Libya and Nigeria into the deal. It envisages setting a 2.8 mln bpd combined production ceiling. If Nigeria maintained its production for three consecutive months at or above 1.8 mln bpd, an emergency JMMC meeting would be called and production would be capped at that level. Since Nigerian production is only likely to reach 1.8 mln bpd this month, the soonest that the cap could be looked at would be October. As history shows, the last time Nigeria registered three consecutive months of production above 1.8 mln bpd was back in 2015, and we consider the chances of its happening this year slight. Under the proposal, Libya would have to hold its production for three straight months at or below 1 mln bpd; the last time it registered three consecutive months of production above that level was 2012, and we consider its achieving it this year unlikely, as well.
The proposal is more important to the big picture, but in the short term, prices may be given a bump by the Saudi energy minister's reiteration that it will lower exports by 0.6 mln bpd m-o-m to 6.6 mln bpd in August, which would be 0.7 mln bpd lower y-o-y. Thus, it was again made clear that Saudi Arabia is concentrating on exports, and, given this, we think an acceleration of inventory draws in the US in late August and September may definitely be in the cards.
> Gold price stable at around $1,255/oz ahead of Fed meeting. Yesterday, the gold price went through a choppy cycle, at first falling by $4/oz to $1,252/oz then rising by $6/oz to $1,258/oz before eventually stabilizing near $1,255/oz, which is where we find it this morning. The Fed meeting will conclude tomorrow with a statement (21:00 Moscow time) but no press conference. It is almost certain that the Fed will keep rates at 1.25%, meaning that investors will be left guessing over what the Fed will do in September. The probability of a hike to 1.5% at the September meeting is currently at 10%, down from 22% early this month. The recently lackluster US economic data is keeping this probability low and suggests that the Fed may have difficultly doing what it wants to do before year end. The probability of a December hike is currently at 38% (for more details, please see yesterday's "Federal Reserve Preview: No Hike, But a Hint of Concern?"). In today's statement, we expect the Fed to leave its options for another rate hike this year open with a tone somewhat softer than in previous statements. However, we do not think that the statement will generate significant enough pressure on the dollar index to drive gold above $1,260/oz. We see gold likely ending the day within the $1,255-1,260/oz range.