Commodities. Oil and Gold Daily - July 26, 2017

> Improved sentiment and huge API draw push oil prices higher. The Brent September contract made strong gains yesterday. It started to steadily rise from around $48.9/bbl mid-day to close at $50.2/bbl, up $1.6/bbl on the day. The move was driven by improved sentiment after the JMMC meeting and the Saudi energy minister reiterating that Saudi Arabia will cut exports by 0.6 mln bpd to 6.6 mln bpd in August, which would mark a 0.7 mln bpd y-o-y drop. Brent continued to advance after the close, supported by yesterday's API data, and was trading as high as $50.6/bbl this morning.
Last week the EIA reported a 4.7 mln bbl draw in US crude inventories in the week to July 14, to 490.6 mln bbl, after the API reported a 1.6 mln bbl build the day before, to 497.2 mln bbl. This put the gap between their total inventory estimates at 6.6 mln bbl. Yesterday the API reported that US crude stocks fell 10.2 mln bbl to 487 mln bbl in the week to July 21 (versus the Bloomberg median estimate of a 3 mln bbl decline). We attribute the sharp w-o-w drop to the API bringing its total inventories estimate in alignment with the EIA data for the previous week. The headline inventory draw was driven by a 0.15 mln bpd w-o-w rise in refinery runs and a 0.57 mln bpd drop in imports, to 7.5 mln bpd. The refined product inventory data was mixed. Gasoline stockpiles rose by 1.9 mln bbl (versus the Bloomberg estimate of a 1.8 mln bbl decrease), while distillate inventories fell 0.11 mln bbl (versus the Bloomberg estimate of a 0.5 mln bbl drop).
The EIA's inventory data for last week is due today at 17:30 Moscow time. In our view, it could drive Brent below $50/bbl. Even though the report is likely to be constructive, the chances of significant bullish surprises are slim (especially after the API data). Another reason for our bearish outlook is the fact that Brent has risen nearly $2.7/bbl in two days and is now vulnerable to a correction.
> Gold retreats prior to Fed decision as Treasury yields and dollar rise. After peaking early yesterday at almost $1,258/oz, gold started to drop, eventually closing $8/oz lower at $1,250/oz. Yesterday's retreat came on the back of a strong push upward in the US 10y Treasury yield. The gold price has fallen to $1,245/oz today, as the dollar, after choppy trading yesterday, has moved into a clear upward trend after reaching a 13-month low yesterday afternoon. This has all occurred in the lead-up to the Fed decision, due this evening at 21:00 Moscow time. The regulator is almost certain to keep rates on hold, so the focus will be on the statement. Based on the current price action, it looks like market players anticipate hints that the Fed will start to trim its bond holdings as early as this autumn, and that another rate hike this year is still on the table - the comments on inflation will provide insight here. We believe gold could benefit from its safe-haven appeal today, as investors could have doubts over the statement, which is unlikely to deviate significantly from previous ones. In her testimony to Congress, Fed Chair Yellen said that subdued inflation was only "partly the result" of one-off factors, while she had said previously that it was "significantly" caused by them. This suggests that the Fed may be turning more cautious on low inflation (for more, see yesterday's "Federal Reserve Preview: No Hike, But a Hint of Concern?").